Loan Prepayment Calculator

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 7.5% and a fixed deposit earns 7% pre-tax (about 4.8% post-tax in the 30% slab, including 4% cess), prepaying the loan gives you a guaranteed 7.5% return, better than the FD.

Equity mutual funds have historically returned more over long periods (the Nifty 50 TRI returned about 11% a year over the 10 years to September 2026, pre-tax, but only about 6% over the last five) with no guarantee, while PPF currently pays 7.1%. If you can stay invested through downturns, investing the surplus may beat prepaying. Tax matters too: in the old tax regime, home loan interest up to ₹2 lakh a year is deductible under Section 22(2) of the Income-tax Act, 2025 (formerly Section 24(b)), which lowers your effective loan cost. In the new regime, the default, there is no such deduction.

Most home loans are floating-rate, and RBI rules bar prepayment charges on floating-rate loans to individuals for non-business purposes (see the RBI Pre-payment Charges on Loans Directions, 2025 and the charges section below). So a part-prepayment on such a loan costs nothing extra. Whether it's worth doing depends on whether your loan rate beats your post-tax investment return.

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.

If you have more than one loan, put spare cash on the one with the highest rate that gives you no tax deduction. That is almost always a credit card balance, then a personal loan, then a car loan. A home loan usually comes last: it has the lowest rate, and in the old tax regime part of its interest is deductible.

One catch: personal and car loans are usually fixed-rate, so lenders can charge for prepaying them. A 2–6% foreclosure fee eats into the saving, so run the numbers above with the fee taken off your prepayment amount.

• Floating-Rate Loans to Individuals: No prepayment charges. The RBI (Pre-payment Charges on Loans) Directions, 2025 bar all commercial banks, co-operative banks, NBFCs and all-India financial institutions from charging them on floating-rate loans to individuals for non-business purposes, for loans sanctioned or renewed on or after 1 January 2026, with no lock-in and whatever the source of funds. Banks were already barred since 2012 (home loans) and 2014 (all floating-rate term loans to individuals).
• Fixed-Rate Home Loans: Lenders may charge a prepayment fee as set out in their policy and your loan's Key Facts Statement. Since most home loans in India are floating-rate, this rarely applies. Check your loan agreement for the exact clause.
• Personal Loans: Usually fixed-rate, so charges apply. For example, HDFC Bank (Sep 2026) charges 4%, 3% or 2% of the outstanding for foreclosure depending on how many EMIs you have paid, and allows part-payments after the first EMI, up to 25% of the outstanding, once a year. Other lenders differ, so check your Key Facts Statement.
• Car Loans: Usually fixed-rate, so charges apply. For example, HDFC Bank's new-car loans (Sep 2026) charge 6% of the outstanding for foreclosure in the first year, 5% in the second and 3% after that (5% for loans from 1 December 2025), and allow part-payments only twice over the tenure. Check your lender's terms.
• Tax Implications (old regime only): Under the Income-tax Act, 2025, interest on a loan for a self-occupied home is deductible up to ₹2 lakh a year under Section 22(2) (formerly 24(b)), and principal repayment, including prepayment, counts towards the ₹1.5 lakh limit under Section 123 read with Schedule XV (formerly 80C). Prepaying can reduce the interest you can claim, so factor this in. Neither deduction is available in the new tax regime, which is the default.