Loan Prepayment Calculator

See how much interest you can save by making part-payments.

Loan Prepayment

Loan
%
Years

Interest Savings

About Loan Prepayment

Loan prepayment means paying off part or all of your loan before the scheduled tenure ends. This reduces the outstanding principal, leading to significant interest savings.

Why Prepay:

  • Save lakhs in interest payments
  • Become debt-free faster
  • Improve credit score and borrowing capacity
  • Reduce financial stress and EMI burden
  • Free up monthly cash flow sooner

Prepayment Impact

Two Options After Prepayment:

Option 1: Reduce Tenure

Keep EMI same, finish loan faster. Maximum interest savings. Recommended for most people.

Option 2: Reduce EMI

Keep tenure same, pay less monthly. Better cash flow, lower total savings. Choose if tight on budget.

Pro Tip: Reduce tenure saves 40-60% more interest than reducing EMI!

Key Insights

⚡ Early Prepayment Power

Prepaying ₹5L in Year 1 saves ₹8-10L interest on a 20-year loan @ 9%. Same ₹5L in Year 15 saves only ₹2L. Time is everything!

💰 The 1% Rule

For every 1% reduction in outstanding principal through prepayment, your total interest reduces by 2-3% on long-term loans.

🎯 Annual Strategy

Prepay with bonus/tax refund annually rather than keeping it in savings account @ 3-4%. Loan prepayment gives guaranteed 9%+ return!

Did You Know?

🏠 RBI Regulation

RBI mandates ZERO prepayment charges on floating rate home loans. Banks cannot legally charge you! Only fixed-rate loans can have 2-4% charges.

📊 Tax Impact

Prepaying reduces future interest payments, which reduces your 24(b) tax deduction. But total savings still heavily favor prepayment in most cases.

⏰ Sweet Spot

Prepaying in years 1-7 of a 20-year loan gives maximum benefit. After Year 10, impact reduces significantly as you've already paid bulk of interest.

Frequently Asked Questions About Loan Prepayment

Prepay as early as possible - initial years have maximum interest component. Prepaying ₹1 lakh in Year 1 of a 20-year loan saves ₹1.5-2 lakhs in interest. Also prepay when: (1) you receive bonus/windfall, (2) interest rates are high, (3) you have no better investment opportunity, (4) psychological benefit of being debt-free matters to you.
Reduce TENURE to maximize interest savings! Example: ₹50L loan @ 9% for 20 years, prepaying ₹5L in Year 1. Reduce tenure: saves ₹18L interest, finishes 3 years early. Reduce EMI: saves ₹12L interest, same 20-year tenure. Reducing tenure gives 50% more savings! Choose reduce EMI only if you need better monthly cash flow.
Home Loans (Floating Rate): NIL prepayment charges as per RBI guidelines. Home Loans (Fixed Rate): 2-4% penalty. Personal Loans: 2-5% penalty depending on bank. Car Loans: Usually 2-5%. Always check your loan agreement. Even with 2-3% penalty, prepayment often saves substantial interest long-term.
Prepay as much as you can afford without compromising emergency fund (6 months expenses) and short-term goals. Prioritize prepayment over investments if loan interest rate > expected investment returns. Example: If home loan is 9% and FD gives 7%, prepaying loan gives guaranteed 9% return!
Compare loan interest vs investment returns. If loan @ 9% and you can earn 12% elsewhere, invest. But consider: (1) Loan interest saving is GUARANTEED, investment returns are not, (2) Risk-free nature of prepayment vs market volatility, (3) Psychological benefit of being debt-free. Rule: If difference < 3%, prepay for peace of mind.
Yes! Most loans allow partial prepayment. You can prepay any amount above minimum threshold (usually ₹1K-10K). After prepayment, you choose: reduce EMI or reduce tenure. Banks process request within 1-2 weeks. You can make multiple prepayments throughout loan tenure.
Prepay HIGHEST INTEREST RATE loan first. Personal loans @ 12-16% should be prepaid before home loans @ 8-9%. But consider tax benefits: home loan interest (up to ₹2L) is tax-deductible, personal loan isn't. After tax adjustment, if personal loan effective rate > home loan, prepay personal loan first.