Decision Tool
Loan Prepayment Calculator
See how prepaying your loan saves lakhs in interest. Compare reduced tenure vs reduced EMI, and find the optimal prepayment amount for your home, car, or personal loan.
Loan Details
Prepayment Details
Interest Saved
Original Total Interest
New Total Interest
Tenure Reduced By
Effective Return
With vs Without Prepayment
Amortization Schedule (Selected Months)
| Month | EMI | Principal | Interest | Prepayment | Balance (Without) | Balance (With) |
|---|
EMI is calculated using the standard reducing-balance formula. Prepayment is applied to the outstanding principal, reducing future interest. Figures are approximate and may differ slightly from your bank's schedule due to rounding and day-count conventions.
Should You Prepay Your Loan?
Loan prepayment makes financial sense when the interest rate on your loan is higher than the post-tax returns you earn on your investments. For example, if your home loan charges 8.5% and your fixed deposits earn 7% pre-tax (around 4.9% post-tax for the 30% bracket), prepaying the loan gives you a guaranteed 8.5% return — far better than the FD.
However, if you are investing in equity mutual funds or PPF that historically deliver 10-12% pre-tax, you may be better off investing the surplus rather than prepaying. The decision also depends on your tax bracket — under Section 24(b), home loan interest up to ₹2 lakh is deductible, effectively reducing your loan cost to around 6-7% for many borrowers.
The RBI circular dated June 2012 mandates that banks cannot charge prepayment penalties on floating-rate home loans. This makes partial prepayment a no-brainer whenever you have surplus funds and your loan rate exceeds your investment returns.
Rule of thumb: If your loan interest rate exceeds the post-tax return on your best alternative investment, prepay. If not, invest the surplus instead.
How to Use This Calculator
- 1
Enter your outstanding loan details
Input the remaining loan amount, current interest rate, and remaining tenure in years. You can find these on your latest loan statement or bank app.
- 2
Choose prepayment type and amount
Select whether you want to make a one-time lump sum payment or add a monthly extra payment. Enter the amount you can spare for prepayment.
- 3
Set when prepayment starts and its impact
Specify after how many months the prepayment begins. Then choose whether you want to reduce your loan tenure (keeping EMI same) or reduce your EMI (keeping tenure same).
- 4
Review savings and amortization
The calculator instantly shows your total interest savings, new tenure or EMI, and an amortization schedule comparing both scenarios month by month.
Reduce Tenure vs Reduce EMI
Reduce Tenure — Maximum Savings
Keep your EMI the same and shorten the loan period. This option saves you the most interest because the principal reduces faster, leaving fewer months for interest to accrue. Best when you can comfortably afford your current EMI and want to become debt-free sooner.
Reduce EMI — More Cash Flow
Keep the same tenure but lower your monthly payment. You still save on interest (since the principal is lower), but less than the reduce-tenure option. Best when you need more monthly breathing room — for example, if you are expecting a career change or additional expenses.
Pro tip: Reducing tenure almost always saves more interest. For a ₹50 lakh loan at 8.5% for 20 years, a ₹5 lakh lump sum prepayment after 1 year saves roughly ₹8-10 lakh more in interest with the reduce-tenure option compared to reduce-EMI.
Prepayment Charges & Rules
- Floating-Rate Home Loans: Zero prepayment penalty. The RBI circular (NBS.CC.PD.No.340/03.10.42/2012-13) dated June 2012 prohibits banks and NBFCs from charging foreclosure or prepayment penalties on floating-rate term loans to individual borrowers.
- Fixed-Rate Home Loans: Banks may charge 2-3% of the prepaid amount as penalty. Since most home loans in India are floating-rate, this rarely applies. Check your loan agreement for the exact clause.
- Personal Loans: Prepayment charges range from 2-5% of the outstanding amount, and many banks impose a lock-in period of 6-12 months before allowing prepayment. HDFC Bank, ICICI, and SBI each have different policies — always confirm with your lender.
- Car Loans: Most banks charge 2-5% of the principal being prepaid. Some banks like SBI offer zero prepayment charges on car loans after a certain period. A few NBFCs charge up to 5-7% in the first year.
- Tax Implications: Under Section 24(b), home loan interest up to ₹2 lakh/year is deductible for self-occupied property. Prepaying reduces this deduction — factor this into your decision. Under Section 80C, principal repayment (including prepayment) up to ₹1.5 lakh qualifies for deduction under the old tax regime.
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