Quick answer
How much do I save by prepaying a loan?
Prepaying cuts the principal on which interest is charged. On a ₹50 lakh home loan at 8.5% for 20 years, a one-time ₹5 lakh prepayment after a year saves about ₹16 lakh of interest and closes the loan 4 years early. Paying just ₹5,000 extra every month saves about ₹13.9 lakh.
- Biggest saving: prepay early in the loan and reduce the tenure
- No penalty on floating-rate loans to individuals (RBI)
- Guaranteed return equal to your loan interest rate
When does loan prepayment help the most?
In the early years most of each EMI is interest, so every rupee you prepay then removes years of future interest. Bonuses and annual increments are a good time to prepay. Keep an emergency fund first, and don’t prepay a cheap loan using money that earns more elsewhere.
How much interest is saved by a home loan prepayment?
Take a ₹50 lakh home loan at 8.5% for 20 years. The EMI is about ₹43,391 and the total interest about ₹54.14 lakh. Here is the interest saved, and how much earlier the loan ends, if you keep the same EMI:
| Prepayment | Interest saved | Loan ends earlier by |
|---|---|---|
| ₹5 lakh after month 12 | ₹16,03,691 | 4 years |
| ₹5 lakh after month 60 | ₹10,69,153 | 3 years |
| ₹5 lakh after month 120 | ₹5,71,382 | 2 years |
| ₹5,000 extra every month | ₹13,89,250 | 4 years 5 months |
The same ₹5 lakh saves almost three times as much interest in year one as in year ten. A steady monthly extra works well too, and is easier to fit into a budget.
How does the loan prepayment calculator work?
Enter your loan amount, rate and tenure, then add a one-time part payment, the month you’ll pay it, a monthly extra, or both. The calculator lowers the outstanding principal by each prepayment and keeps your EMI the same, so the loan simply ends sooner. It then compares total interest with and without the prepayments.
Banks usually let you choose to reduce the tenure or reduce the EMI instead. Reducing the tenure, as shown here, saves the most. If you would rather keep the tenure and lower your monthly EMI, ask your bank to recalculate the EMI on the reduced balance; you save less interest, but your monthly budget gets more room.
Frequently asked questions
How much interest do I save by prepaying my home loan?
On a ₹50 lakh loan at 8.5% for 20 years, a one-time ₹5 lakh prepayment after the first year saves about ₹16 lakh in interest and ends the loan 4 years early, if you keep the same EMI.
Should I reduce my EMI or my tenure after prepaying?
Reducing the tenure saves far more interest, because the extra payment cuts the number of months interest is charged. Reduce the EMI only if you need a lower monthly outflow.
Is there a penalty for prepaying a home loan?
RBI rules don’t allow banks to charge prepayment or foreclosure penalties on floating-rate loans taken by individuals. Fixed-rate loans may carry a charge, so check your loan agreement.
Is it better to prepay the loan or invest?
Prepaying gives a guaranteed “return” equal to your loan rate. If you expect investments to earn clearly more after tax than your loan rate, investing may grow faster, but with risk. Many people do a bit of both.
What is the difference between prepayment and foreclosure?
A prepayment, or part payment, repays some of the principal while the loan continues with a smaller balance. Foreclosure repays the whole outstanding balance at once and closes the loan.
Can I use this calculator for a personal or car loan?
Yes. Any loan with a fixed EMI on a reducing balance works the same way, so enter its amount, rate and tenure. Check your agreement first, because personal, car and fixed-rate loans often carry a part-payment fee.