Loan Prepayment Calculator

What Is Loan Prepayment?

A normal EMI splits into two parts: interest on the balance you still owe, and principal that reduces that balance. A prepayment skips straight to reducing the balance, without waiting for the EMI schedule to get there.

Since interest is recalculated every month on whatever balance remains, a lower balance means less interest for every single EMI that follows, not just the next one. That effect compounds for the rest of the loan.

Prepayment applies to any EMI-based loan in India: home loans, personal loans, car loans, education loans and business term loans. The calculator above works the same way for all of them; only the amount, rate and tenure change.

Prepayment vs Preclosure vs Foreclosure

Prepayment and part payment mean the same thing: paying extra toward principal while the loan keeps running. Preclosure and foreclosure also mean the same thing as each other: paying the entire remaining balance at once and closing the loan.

This calculator models prepayment and part payment: an extra monthly amount or a lump sum that reduces the balance without ending the loan. For a full payoff calculation, set the prepayment amount equal to the remaining balance shown in the calculator.

How Prepayment Saves Interest

Every prepayment removes a rupee from the balance that interest is calculated on, for every month that rupee would otherwise have stayed in the loan.

1. Interest this month: outstanding balance multiplied by the monthly rate (annual rate divided by 12).
2. Principal from the EMI: the EMI minus that month's interest, same as any amortizing loan.
3. Prepayment: applied on top, cutting the balance further before next month's interest is calculated.

Because this repeats every month for the rest of the loan, a prepayment made early saves more than the same amount paid later. It has more months left in which it would otherwise have kept generating interest.

The full mechanics of how an EMI splits into principal and interest are covered in detail in the Loan Amortization Calculator, including the exact formula and a month-by-month schedule.

Worked Example: Rs 30 Lakh Loan at 8.5% for 20 Years

A Rs 30 lakh loan at 8.5% for 20 years has an EMI of Rs 26,035 and would cost Rs 32,48,327 in interest if paid exactly on schedule.

Adding Rs 5,000 extra every month from the start saves Rs 11,73,056 in interest and closes the loan in 13 years 8 months instead of 20, a reduction of 6 years 4 months.

Doubling that to Rs 10,000 extra a month saves Rs 17,00,094 and finishes the loan in 10 years 7 months. The saving does not double with the payment.

A large part of the extra Rs 5,000 in the second scenario only removes interest from years that the first scenario had already avoided.

Benefits of Loan Prepayment by Scenario

The table below shows five prepayment strategies on the same Rs 30 lakh, 8.5%, 20-year loan, each independently recomputed from the loan's own amortization schedule.

The same Rs 5 lakh lump sum saves more than double when paid with EMI 25 versus EMI 109. Earlier and larger prepayments always win; the calculator above lets you test your own amount and timing.

Reduce Tenure vs Reduce EMI

After a lump sum prepayment, a lender applies it one of two ways: keep the EMI the same and shorten the loan, or keep the original end date and lower the EMI.

Reduce tenure saves close to three times as much interest here, because it keeps applying the higher EMI to a shrinking balance.

Reduce EMI is the better choice only when a lower monthly payment matters more than the total interest saved, for example if the household budget is genuinely tight.

Set the toggle in the Lump Sum tab of the calculator above to compare both outcomes on your own numbers. For a home loan specifically, with support for bank-published rates, use the Home Loan Prepayment Calculator.

Best Time to Prepay a Loan

The earlier a loan is prepaid, the more interest it saves, because interest makes up the largest share of an EMI in the first few years.

Across those first five years, roughly 77% of every EMI paid is interest. A prepayment in year 3 of this loan saves Rs 12,80,463 for Rs 5 lakh, more than double the Rs 5,87,588 the identical prepayment saves if made in year 10 instead.

This is also why paying down a personal or car loan, which usually runs 3 to 7 years, has a shorter early-advantage window than a 20-year home loan; there are simply fewer years left in which an early prepayment can still avoid interest.

Prepayment and Foreclosure Charges in India

RBI has removed prepayment penalties on most retail loans over the last decade, but the rule applies by rate type, not by loan type.

• Banks, since May 2014: no foreclosure charge or prepayment penalty on floating-rate term loans to individual borrowers.
• NBFCs, since August 2019: RBI clarified the same rule applies to NBFC floating-rate loans to individuals, for non-business purposes.
• RBI (Pre-payment Charges on Loans) Directions, 2025: for loans sanctioned or renewed on or after 1 January 2026, no prepayment charge on floating-rate loans to individuals and to Micro and Small Enterprises, for part or full prepayment, from any source of funds.

Fixed-rate loans fall outside this protection. A personal loan, which is usually fixed-rate in India, commonly carries a foreclosure charge of around 2% to 5% of the outstanding principal plus GST.

As one published example, SBI has charged 3% of the outstanding principal for personal loan foreclosure within the first 2 years.

HDFC Bank's published car loan foreclosure charge steps down with time: around 6% of the outstanding principal within the first year, 5% between 13 and 24 months, and 3% after 24 months.

Always confirm the current charge in your own loan's Key Facts Statement, since these change and vary by lender.

Personal Loan vs Home Loan: Which to Prepay First

The usual advice is to prepay the highest-rate loan first, since that rupee earns the highest guaranteed return. That holds when the two loans have a similar remaining tenure.

It gets more nuanced when tenures are very different. A Rs 1 lakh prepayment on a 5 lakh, 14%, 4-year personal loan saves Rs 61,836 in interest.

The identical Rs 1 lakh on a 30 lakh, 8.5%, 20-year home loan saves Rs 4,05,854, over six times more, purely because the home loan has 16 more years left for that rupee to keep avoiding interest.

So the higher rate does not automatically mean the bigger rupee saving; the remaining tenure matters just as much.

What the higher rate does guarantee is a better return per year the money stays committed, so a personal loan is still usually the right priority when both loans have years left to run.

Run both loans through the calculator above with the same prepayment amount to see which produces the bigger saving for your specific numbers, rather than assuming the answer from the rate alone.

Prepayment vs Investment

Prepaying is a guaranteed, risk-free return equal to the loan's interest rate. Investing the same amount can earn more, but only with market risk attached, and the fair comparison is the investment's gain, not its full value.

At a 12% assumed equity return, investing beats prepaying by roughly Rs 4.5 lakh over 15 years, before tax on the gains and before accounting for market risk. At a 7.5% debt return, prepaying wins outright, since 8.5% guaranteed beats 7.5% guaranteed every time.

For borrowers who have exhausted their Section 80C and 24(b) limits, prepaying also reduces future deductions, which trims its effective benefit slightly under the old tax regime. Use the SIP Calculator to model the investment side with your own expected return.

Prepayment by Loan Type

Home loans

The longest tenures and the biggest absolute savings. No prepayment charge on floating-rate home loans to individuals. Some lenders set a minimum part-payment amount, so check the loan agreement first.

Personal loans

Usually fixed-rate, so a foreclosure charge of roughly 2% to 5% often applies. Because the tenure is short, the early-prepayment advantage window closes faster than on a home loan.

Car and two-wheeler loans

Lenders often limit part payments. HDFC Bank, for example, allows two over the car loan, no more than one a year, each up to 25% of the outstanding principal. Fixed-rate vehicle loans typically carry a foreclosure charge that steps down after the first year or two.

Education loans

Prepayment is most valuable right after the moratorium ends, since interest has usually already accrued through the study period. See the Education Loan EMI Calculator for the moratorium-specific math.

Common Prepayment Mistakes to Avoid

• Not telling the lender how to apply it: ask explicitly for tenure reduction if minimising total interest is the goal, since some lenders default to reducing the EMI instead.
• Prepaying a fixed-rate loan without checking the charge: a 3-5% foreclosure charge can offset much of the interest saved on a small prepayment made late in the loan. Enter it under More settings to see the net figure.
• Ignoring an emergency fund: a lump sum locked into a loan cannot be withdrawn back out if an emergency comes up.
• Waiting too long: the same amount saves far less once most of the interest has already been paid.
• Comparing raw amounts instead of guaranteed rate: a bigger rupee saving on a low-rate loan does not mean it was the better use of that money; check the effective return, not just the number.

Limitations of This Calculator

Assumes a constant interest rate. A floating-rate reset changes the EMI or tenure independently of any prepayment, so results are exact only while the rate holds.

Charges are applied as a flat percentage, before GST. The Prepayment Charge setting takes a single rate on the amount prepaid. Lenders whose charge steps down over time, or who add GST and fees on top, will show a slightly different net figure.

One lump sum or one recurring extra amount at a time. Multiple separate lump sums across different years need to be modelled one at a time, using the balance after the previous one as the new starting point.

How to Use This Loan Prepayment Calculator

1. Loan details: enter the loan amount, interest rate and original tenure. If the loan is already running, open More settings and set Loan Age.
2. Fixed-rate loan? In More settings, enter the prepayment charge from your Key Facts Statement to see the net saving after the charge.
3. Choose a mode: Monthly Extra for a recurring additional payment, or Lump Sum for a one-time payment tied to a specific EMI number.
4. For a lump sum, pick a strategy: Reduce Tenure to keep the EMI and finish sooner, or Reduce EMI to keep the end date and pay less each month.
5. Read the results: interest saved, the new tenure or new EMI, and the original-vs-prepaid comparison.
6. Amortization Comparison: expand it for the year-by-year bar chart and table.

Frequently Asked Questions

Disclaimer: All calculations on this page are indicative only and based on the inputs provided. Actual savings can differ because of rounding, day-count conventions, prepayment or foreclosure charges, fees, GST on charges and floating-rate resets. Interest rates and bank charge examples cited are illustrative and subject to change; confirm current charges with your lender. Tax rules are summarised for general information. This calculator is for educational and planning purposes only and does not constitute financial, tax or legal advice. Consult your lender or a qualified CA before making prepayment decisions.