Prepay or Invest Calculator

Got a lump sum? Compare prepaying your loan with investing the money, on a like-for-like basis: same monthly outgoings, same end date, tax on gains included.

Last updated 24 Sep 2026

Prepay or invest

CurrencyLoan + lump sum + return → which leaves more

Outstanding loan balance ($)

Loan interest rate (% per year)If the interest earns you a tax deduction, enter the rate after that benefit.

Months left on the loan

Lump sum available ($)

Expected investment return (% a year)An effective annual return, before tax. Not guaranteed — try a lower figure too.

Your tax rate on investment gains (%)0 if none. Taken once, on the gain, when the investment is valued at the end of the loan. The page does not know your country’s rules.

$-2,65,425Example

$30,00,000 left at 8.5% with 180 months to go, and $5,00,000 to prepay or invest at 10% a year, before tax

Two paths to the same date

Invest: V_B = L × (1 + i)^N · Prepay: V_A = (EMI − f) × (1 + i)^N−k + EMI × [(1 + i)^N−k − 1] ÷ i

L: the lump sum; N the months left on the loan
i: the monthly return: (1 + annual return)^1/12 − 1
k: the month the prepaid loan ends at the same EMI, with a smaller final payment f
tax: each value then loses tax × (value − money put in); the headline is V_A − V_B after tax

Worked example

$30,00,000 left at 8.5% with 180 months to go, and $5,00,000 to prepay or invest at 10% a year, before tax
Current EMI $29,542. Prepaying cuts the balance to $25,00,000; at the same EMI the loan ends after 130 months and $9,88,521 of interest is saved
The EMI is then free for the last 50 months; invested at 10% it grows to $18,23,199
Investing instead: 5,00,000 × 1.10¹⁵ = $20,88,624
Prepay minus invest = 18,23,199 − 20,88,624 = −$2,65,425: investing is ahead, if 10% is earned

Prepaying minus investing: 5,00,000 against 30,00,000 at 8.5%, 180 months left

Positive favours prepaying. Before tax the paths tie at the loan’s effective rate, 8.84%. Tax on gains tilts the answer towards prepaying, because the invested lump sum has the larger gain to tax. The tax rates are illustrations, not any country’s rules.
Return a year	No tax on gains	20% tax on gains	30% tax on gains
6%	$4,84,070	$5,84,960	$6,35,406
8%	$1,65,487	$3,30,094	$4,12,397
10%	$-2,65,425	$-14,636	$1,10,759
12%	$-8,39,491	$-4,73,888	$-2,91,087

A fair comparison, and the part no calculator can settle

The usual way to ask this question compares the interest a prepayment saves with what the lump sum would earn. That is not like for like: the interest saved arrives over years, as EMIs you no longer have to pay, while the investment compounds from day one. This page lines the two paths up exactly. On both, you pay the same EMI out of your income every month until the loan’s original end date. If you prepay, the loan ends early and from then on the EMI goes into the same investment instead. At the end date both loans are gone, so the only difference between the paths is the value of the investments, after tax on the gains.

Those freed EMIs are the prepayment coming back to you: they add up to the lump sum plus the interest saved, exactly. So the interest saved is already counted in their value and must not be added on top. Before tax, the two paths tie when the investment return equals the loan’s rate compounded monthly — 8.84% a year on an 8.5% loan. Above it investing leaves more, below it prepaying does.

Tax is taken once, on the gain, when each investment is valued at the end — the way gains on funds or shares are usually taxed when sold. Because the invested lump sum has the bigger gain, tax narrows its lead: in the example a 20% rate on gains cuts investing’s lead from $2,65,425 to $14,636. If your loan interest is tax-deductible, enter the rate after that benefit, since prepaying then saves less.

The risk is the part the arithmetic cannot price. Prepaying earns the loan’s rate with certainty; the investment return is an assumption, and a few bad years near the end can erase a lead built over a decade. Prepaying also cannot be undone, while an investment can be sold in an emergency. Many people keep an emergency fund first and then decide. In India the Reserve Bank has barred banks from charging individual borrowers a prepayment penalty on floating-rate term loans; check your own terms for fixed-rate loans. The loan prepayment calculator shows the reduce-EMI option, and the lumpsum investment calculator the investment on its own. This is arithmetic on the figures you enter, not financial advice.

Frequently asked questions

Is it better to prepay a loan or invest?

Before tax, investing leaves more only if it earns more than the loan’s rate compounded monthly (8.84% on an 8.5% loan), and that return is not guaranteed. Prepaying earns exactly the loan’s rate, with certainty.

Why not just compare the interest saved with the investment return?

Because the interest saved comes back to you over years, as EMIs you no longer pay. The page invests those freed EMIs at the same return and compares both paths at the same date with the same monthly outgoings.

How does tax change the answer?

It narrows investing’s lead, because the invested lump sum has the larger gain to tax. In the example, 20% tax on gains cuts it from $2,65,425 to $14,636; at 30% prepaying wins.

Should I reduce the EMI or the tenure when I prepay?

Reducing the tenure saves more interest. This page assumes you keep the EMI and shorten the tenure; the loan prepayment calculator compares both.

Related calculators

References

Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. The present value of an annuity, from which the level-payment loan formula and its inverse for the number of payments follow.
Reserve Bank of India. Levy of foreclosure charges/pre-payment penalty on floating rate term loans. RBI/2013-14/582, 7 May 2014.
Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Risk and return: why an expected return is not a certain one.