Loan Prepayment Calculator

What is loan prepayment

Loan prepayment means paying extra money toward your loan principal before your loan ends.

It can be:

• Part-prepayment: you pay extra once in a while, the loan continues.
• Full prepayment (foreclosure): you close the loan fully before the end date.

When you prepay, your principal reduces faster, so future interest is calculated on a smaller balance, that is why total interest usually drops.

How Loan Prepayment Works

Most loans in India follow a simple monthly cycle:

• Bank calculates interest for the month on your outstanding principal
• Your EMI gets split into interest + principal
• If you make a prepayment, it directly reduces the principal
• From next month, interest is charged on this reduced principal

Two outcomes are common:

• Reduce tenure (most common by default): EMI stays same, loan ends earlier
• Reduce EMI (needs recalculation in many banks): EMI comes down, tenure stays similar

How to Use the Loan Prepayment Calculator

• Enter your loan amount, interest rate, and remaining tenure
• Choose how you want to prepay:
• Monthly extra: fixed extra amount every month
• Annual lump sum: extra payment once a year, choose the month
• Target timeline: tell the month/year you want to finish, the calculator estimates the required extra

Check the results:

• New loan end date
• Total interest saved
• Total amount paid
• Compare Reduce Tenure vs Reduce EMI side-by-side (this is where most clarity comes from)

Tip: If you want to match your bank closely, align the annual lump sum month with when you usually get bonus or large cash inflow.

Benefits of Loan Prepayment

1) Interest saving (the biggest benefit)

When principal reduces early, you pay interest for fewer months and on a smaller balance.

2) Faster debt-free date

If you keep EMI same and prepay, the loan can end months or years earlier.

3) Better monthly flexibility (in EMI reduction route)

If your lender recalculates EMI after prepayment, your EMI can drop, which can free up monthly cashflow.

4) Lower stress during rate hikes

For floating-rate loans, prepayment can reduce the impact of higher rates because your principal reduces.

Monthly extra vs Annual lump sum vs Target timeline

Monthly extra

Best when you have stable surplus every month. Example: "I can add ₹5,000 every month with EMI."

Annual lump sum

Best when money comes in chunks. Example: bonus, incentives, maturity proceeds, annual profit, or seasonal business cashflows.

Target timeline

Best when your goal is time-bound. Example: "I want this loan to end in 6 years because my child's college starts then."

Takeaway:

• If surplus is predictable monthly, choose Monthly extra
• If surplus comes once a year, choose Annual lump sum
• If you care about a specific end date, choose Target timeline

Reduce Tenure vs Reduce EMI

Reduce Tenure (EMI same, loan ends early)

• EMI stays the same
• Tenure reduces
• Usually maximises interest saved

Good fit when your goal is: "Finish the loan as early as possible."

Reduce EMI (tenure similar, EMI reduces)

• EMI reduces after recalculation (depends on lender rules and your request)
• Tenure stays close to original
• Interest saving still happens, but often less than reduce-tenure route

Good fit when your goal is: "I need monthly breathing room."

Important note: Many lenders do not automatically reduce EMI after a part-prepayment. Often you must request EMI recalculation. If not requested, the default outcome tends to be tenure reduction.

Example (Illustration)

Let's take Rohit, a 32-year-old professional in Pune.

• Loan type: Home loan
• Outstanding principal: ₹50,00,000
• Interest rate: 9% per year
• Remaining tenure: 15 years
• Rohit can prepay: ₹10,000/month OR ₹1,20,000/year (bonus)

Scenario A: Rohit prepays ₹10,000 every month and chooses Reduce Tenure

• Principal reduces faster from month 1
• Tenure drops meaningfully
• Interest saving is typically highest here because the loan ends earlier

Scenario B: Rohit prepays ₹10,000 every month and chooses Reduce EMI

• Rohit requests EMI recalculation from the lender (important)
• EMI reduces after recalculation cycles
• Tenure stays closer to 15 years
• Interest saving happens, but the main win is lower EMI

Scenario C: Rohit prepays ₹1,20,000 every year in the bonus month

• Works well if Rohit does not want monthly commitment
• Results depend on the month chosen because earlier-in-year prepayment impacts more EMIs

What Rohit should take away:

• If Rohit's priority is interest saving + early closure, Reduce Tenure is usually stronger
• If Rohit's priority is monthly cashflow, Reduce EMI can fit, but it depends on lender recast rules

Common mistakes people make while prepaying a loan

1) Prepaying late and expecting big interest savings

Most interest is paid in the early years. Prepaying early usually changes outcomes more.

2) Choosing “Reduce EMI” but not requesting recalculation

If the lender doesn't recalculate EMI, the loan may still reduce tenure instead, which can confuse users when comparing bank schedule vs calculator.

3) Using all cash for prepayment and keeping no buffer

Emergency fund matters more than a small interest saving if a job or business income fluctuates.

4) Ignoring charges and lender rules

Some loans may have part-prepayment conditions, minimum amounts, or process steps.

5) Not matching prepayment timing with EMI cycle

Prepaying just after EMI date vs just before EMI date can change lender-side interest calculation slightly (especially in daily-interest methods).

Related Calculators

Use these tools to compare borrowing, investing, and long-term planning choices alongside your loan prepayment strategy.