Loan Prepayment Calculator
Calculate how much interest and time you save by making a lump sum loan prepayment.
⏩ What is Loan Prepayment?
Loan prepayment (also called part-payment or foreclosure) means paying an amount over and above your regular EMI to reduce your outstanding principal faster. This can happen as a lump sum payment - for example, using a year-end bonus or matured investment - or as an increased monthly EMI.
Because loan interest is calculated on the outstanding principal at any given point (reducing-balance method), reducing the principal faster dramatically cuts the total interest paid and shortens the loan tenure. The earlier in the loan life you prepay, the greater the savings - because interest forms a larger share of the EMI in the early years.
This calculator simulates a single lump sum prepayment at the current point in time and shows exactly how many months you save and how much interest is eliminated.
📐 How Prepayment Savings Are Calculated
The key assumption: your EMI stays the same after the prepayment. The prepayment reduces the outstanding principal, so with the same EMI you now finish paying off the loan sooner. Alternatively, you could reduce your EMI - but reducing tenure saves more total interest.
📖 How to Use This Calculator
Steps
💡 Example Calculations
Example 1 - Home Loan Prepayment
Outstanding: ₹30L | Rate: 8.5% | Remaining: 15 years | Prepayment: ₹5L
❓ Frequently Asked Questions
🔗 Related Calculators
How much interest does prepaying a home loan save?
Prepaying a home loan early in the tenure saves the most interest because the outstanding principal is highest then. Example: a 50L loan at 8.5% for 20 years. After 3 years, a lump sum prepayment of 5L reduces outstanding tenure by approximately 2.5 years and saves 8-10L in total interest. The earlier you prepay, the greater the savings.
Is it better to reduce EMI or reduce tenure when prepaying?
Almost always reduce tenure, not EMI. When you reduce tenure, you pay off debt faster and save significantly more interest. When you reduce EMI, you free up monthly cash flow but the total interest savings are much lower. Example: a 30L loan at 9%, prepayment of 3L. Reducing tenure saves approximately 4.5L in interest. Reducing EMI saves approximately 1.5L in interest. Choose EMI reduction only if you genuinely need the monthly cash flow relief.
Is there a prepayment penalty on home loans?
Per RBI guidelines, banks and HFCs cannot charge prepayment penalties on home loans with floating interest rates. Fixed-rate home loans may carry a prepayment charge of 2-3% of the prepaid amount. Always check your loan sanction letter for the specific prepayment clause. Most modern home loans are on floating rates, so prepayment is typically free. For personal and auto loans, check with your lender - fixed-rate products may have foreclosure charges.
When is the best time to make a lump sum prepayment?
The best time to prepay is as early in the loan tenure as possible, because the outstanding principal is highest and interest savings are maximised. If you receive a bonus, tax refund, or windfall, using it for loan prepayment beats most low-risk investments when your loan rate is 8%+ (since guaranteed savings equal the loan rate). However, first ensure you have 3-6 months of emergency funds in liquid savings before using surplus income for prepayment.
How does partial prepayment affect the amortization schedule?
A partial prepayment reduces the outstanding principal immediately. In subsequent months, EMI stays the same (if you chose tenure reduction) but more of each EMI goes toward principal and less toward interest. The amortization schedule is effectively reset from the new outstanding balance. This means each future EMI builds equity faster. Most banks recalculate the schedule after prepayment and issue an updated statement within 1-2 billing cycles.
Should I prepay my loan or invest the surplus?
Compare your loan interest rate against your expected post-tax investment return. If your home loan is at 8.5% and you can invest in a balanced fund returning 11% post-tax, investing wins. If your personal loan is at 15%, prepaying saves more. Rule of thumb: always prepay loans above 12-14% and invest if loan rate is below 8%.
Does prepaying reduce EMI or tenure?
Most lenders default to reducing tenure (keeping EMI constant), which saves more total interest. Some allow choosing EMI reduction instead - useful if your current EMI is straining monthly cash flow. Tenure reduction is almost always the better financial decision for total savings.
How does part-prepayment work vs full foreclosure?
Part-prepayment reduces the outstanding principal without closing the loan. Foreclosure fully repays and closes the loan. Part-prepayment is useful when you have a surplus but not enough to close the loan. Both reduce total interest, but foreclosure ends your obligation immediately. Some lenders charge 2-4% foreclosure charges on fixed-rate loans.