Loan Prepayment Calculator
Loan Prepayment Calculator
Paying a lump sum off your loan? Compare the two choices lenders usually offer — keep the EMI and finish sooner, or keep the tenure and pay a smaller EMI — and see the interest each one saves.
Prepayment: reduce tenure or EMI
$30,00,000 left at 8.5% over 180 months; a prepayment of $5,00,000
Both options in closed form
Reduce EMI: E′ = E × B′ ÷ B; saved = (E − E′) × n − L
- B, B′
- the balance before the prepayment, and after it (B′ = B − L)
- L
- the prepayment
- E
- the current EMI for B over the n months left
- r
- the monthly rate: annual rate ÷ 1200
- n′
- months left if the EMI stays the same; the last instalment is a part payment
Worked example
$30,00,000 left at 8.5% over 180 months; a prepayment of $5,00,000
Current EMI = $29,542; interest still to pay = $23,17,594
Reduce tenure: n′ = −ln(1 − r × 25,00,000 ÷ 29,542) ÷ ln(1 + r) = 129.6 months — 50 instalments fewer
Saved = 29,542 × (180 − 129.6) − 5,00,000 = $9,88,546
Reduce EMI: new EMI $24,618; saved = (29,542 − 24,618) × 180 − 5,00,000 = $3,86,266
Why shortening the tenure saves more
A prepayment goes straight to principal, so it cuts every later month’s interest. What differs between the two options is what happens to the money you would have paid next. Keep the EMI and the full instalment keeps attacking a smaller balance, so the loan ends early and the months cut off the end — the most expensive ones in total interest — are never paid. Keep the tenure and the EMI drops; you pay less each month but carry the reduced balance for the full term, so less interest is saved. In the worked example the difference is $6,02,280.
Reducing the EMI still has a place: it lowers a fixed monthly commitment, which can matter more than total interest if income is uncertain. Whether you get the choice depends on the lender. The figures here assume the rate stays the same for the rest of the loan; on a floating-rate loan it will not, and the savings will move with it. For regular extra payments rather than a lump sum, use the loan payoff calculator.
The chart draws the balance under all three paths. In the worked example the loan runs its full 15 years with no prepayment. Reduce the tenure and it is cleared within 11 years — 130 instalments, the last a part payment. Reduce the EMI and it still runs 15 years, from a lower starting balance. The faster a line falls, the less interest is charged along the way.
On charges: RBI does not permit banks to levy foreclosure or prepayment penalties on floating-rate term loans to individual borrowers (circular of 7 May 2014), and its Pre-payment Charges on Loans Directions, 2025 extend the bar to all regulated lenders for floating-rate loans to individuals for non-business purposes sanctioned or renewed from 1 January 2026. Fixed-rate loans, business loans and loans outside India can carry a charge, so check your loan agreement or Key Facts Statement and subtract any charge from the saving. Money used to prepay also has an alternative use; compare the loan rate with what that money would safely earn after tax. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
Is it better to reduce EMI or tenure after a prepayment?
Reducing the tenure saves more interest — $9,88,546 against $3,86,266 in the worked example. Reducing the EMI eases the monthly budget instead. Which is better depends on whether you need the lower instalment.
Are there charges for prepaying a home loan in India?
Not on floating-rate loans to individuals from RBI-regulated banks, under RBI’s 2014 circular; the 2025 Directions extend this to all regulated lenders for non-business floating-rate loans sanctioned from 1 January 2026. Fixed-rate and business loans may carry a charge — check your agreement.
Why does the calculator recompute my EMI?
It needs the EMI that exactly repays the balance over the months left at your rate. If your actual EMI differs slightly because of rounding or a past rate change, the savings will differ slightly too.
When does prepaying save the most?
Early in the loan, when the balance and the interest still to come are largest, and when the loan’s rate is high.
Related calculators
References
- Reserve Bank of India. Levy of foreclosure charges/pre-payment penalty on floating rate term loans. RBI/2013-14/582, DBOD.Dir.BC.No.110/13.03.00/2013-14, 7 May 2014.
- Reserve Bank of India. Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025. Issued 2 July 2025; applies to loans sanctioned or renewed on or after 1 January 2026.
- 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 follow.