How to use the Loan Prepayment Calculator
- Enter the original loan amount, the interest rate and the tenure in years.
- Enter the part payment you plan to make, for example a bonus or maturity amount.
- Enter how many years after the loan start you will make it.
- Read the interest saved, the new tenure and the time saved. Compare a few prepayment amounts with the table below.
Formula used
Each month: interest = balance × (yearly rate ÷ 12), principal repaid = EMI − interest. At the prepayment date the balance is reduced by the prepayment while the EMI stays the same, so the loan ends sooner.
Worked example
Here is the Loan Prepayment Calculator worked through with the example values shown above, so you can check each step by hand.
| Inputs | |
|---|---|
| Original loan amount | ₹50,00,000 |
| Interest rate (per year) | 8.5 % |
| Original tenure | 20 years |
| Prepayment amount | ₹5,00,000 |
| Prepaid after | 5 years |
| Result | |
| Interest saved | ₹10,69,153 |
| New loan tenure | 17 years, 0 months |
| Time saved | 3 years, 0 months |
| Total interest after prepayment | ₹43,44,726 |
| Total interest without prepayment | ₹54,13,879 |
Savings for different prepayment amounts
For the default loan, with the prepayment made after 5 years and the EMI unchanged.
| Prepayment amount | Interest saved | New loan tenure |
|---|---|---|
| ₹1,00,000 | ₹2,47,514 | 19 years, 4 months |
| ₹2,50,000 | ₹5,84,491 | 18 years, 5 months |
| ₹5,00,000 | ₹10,69,153 | 17 years, 0 months |
| ₹10,00,000 | ₹18,18,150 | 14 years, 8 months |
| ₹15,00,000 | ₹23,55,716 | 12 years, 8 months |
What happens when you prepay
Your EMI is calculated on the loan amount, the rate and the tenure. When you pay a lump sum on top of the EMI, the outstanding principal falls at once. If you keep paying the same EMI, more of every later instalment goes towards the principal, so the loan finishes sooner.
For the default loan of ₹50,00,000 at 8.5% for 20 years, the EMI is about ₹43,391 and the total interest is ₹54,13,879. A prepayment of ₹5,00,000 after 5 years cuts the total interest to ₹43,44,726, saving ₹10,69,153. The loan ends after 17 years, 0 months, which is 3 years, 0 months earlier.
Why the timing matters
The earlier you prepay, the more interest you avoid, because the money would have earned interest for the lender over more years. The same ₹5,00,000 paid after 2 years saves ₹14,57,301, after 5 years saves ₹10,69,153, after 10 years saves ₹5,71,382 and after 15 years saves only ₹2,22,182.
Early in the loan, the EMI is mostly interest, so each prepaid rupee removes principal that would otherwise generate years of interest. Late in the loan, there is little interest left to save.
Prepayment versus investing the money
A prepayment earns you a guaranteed saving equal to the loan’s interest rate. If your loan costs 8.5% and you can invest the same money at a safe, after-tax return above that, investing may win. If the best safe alternative pays less than the loan rate, prepaying is the better use. Equity returns can be higher but are not guaranteed.
Before you decide, also think about liquidity. Money in the loan cannot easily be taken out again, so keep an emergency fund first.
Things to check with your lender
Many floating-rate home loans taken by individuals have no prepayment penalty, but fixed-rate loans and loans taken by businesses may. Check your loan agreement for charges, the minimum prepayment amount and whether you can choose between a shorter tenure and a smaller EMI.
This calculator keeps the EMI fixed and shortens the tenure, because that saves the most interest. It also assumes a constant interest rate, while floating rates change over time.
Frequently asked questions
Should I reduce EMI or tenure after prepayment?
Reducing the tenure usually saves more interest. Reducing the EMI gives more monthly breathing room. This calculator shows the tenure option.
Is there a charge for prepaying a home loan?
Often not for floating-rate loans for individuals, but it depends on the lender and loan type. Read your agreement.
Is it better to prepay early or late in the loan?
Early. The same amount saves far more interest in the first years than in the last years.
Does this work for car or personal loans?
Yes, the logic is the same for any EMI loan. Those loans may have prepayment charges.
What if my rate changes?
The calculator uses one fixed rate. A change in your floating rate will change the result.
Can I prepay more than once?
Yes. Run the calculator with the new balance and remaining tenure, or repeat the steps for each prepayment.
This calculator gives estimates for information only. Actual figures from a bank, employer, tax authority or doctor may differ. It is not financial, tax, legal or medical advice.