Paying a little extra on a loan can save a surprising amount of interest. This calculator shows your EMI, total interest with and without prepayment, and how many months earlier your loan closes – for home loans, car loans, personal loans or mortgages.
How to use it
- Enter the loan amount, interest rate and tenure.
- Add an extra monthly payment (even a small one), a one-time prepayment, or both.
- Choose in which month the lump sum is paid (e.g. month 12 for a year-end bonus).
Example
A ₹30 lakh home loan at 8.5% for 20 years has an EMI of about ₹26,035 and total interest of about ₹32.5 lakh. Paying ₹5,000 extra every month and ₹2 lakh once after a year cuts the interest to about ₹17.3 lakh – saving roughly ₹15.2 lakh – and closes the loan almost 8 years early.
Why early prepayment saves the most
In the early years, most of each EMI goes towards interest because the outstanding balance is high. Every rupee prepaid then reduces the balance on which all future interest is calculated. The same prepayment made in year 15 saves far less.
Reduce EMI or reduce tenure?
Banks usually let you choose. Reducing the tenure (keeping the EMI the same) saves much more interest, which is what this calculator assumes. Reducing the EMI helps cash flow but saves less.
Should you prepay or invest?
- If your loan rate is higher than what you can safely earn elsewhere after tax, prepaying usually wins.
- Keep an emergency fund of 6 months’ expenses before prepaying.
- Home-loan interest can be a deduction in the old tax regime – factor that in.
Prepayment charges
In India, banks cannot charge prepayment penalties on floating-rate home loans taken by individuals. Fixed-rate loans, car loans and personal loans may carry a fee of 2–5% – check your loan agreement.
Small prepayments, big savings
For a ₹30 lakh, 20-year loan at 8.5% (EMI ≈ ₹26,035, total interest ≈ ₹32.5 lakh), here’s what a regular extra payment does on its own:
| Extra every month | Interest saved | Loan closes earlier by |
|---|---|---|
| ₹2,000 | ≈ ₹6.1 lakh | ≈ 3 years |
| ₹5,000 | ≈ ₹11.7 lakh | ≈ 6 years |
| ₹10,000 | ≈ ₹17.0 lakh | ≈ 9 years |
Run your own numbers above – the exact effect depends on your rate and how far into the loan you are.
Strategies that work
- Pay one extra EMI a year (for example from a bonus). On a 20-year loan this alone can cut 3–4 years.
- Increase your EMI by 5% every year as your income grows.
- Round up your EMI – paying ₹27,000 instead of ₹26,035 feels painless but adds up.
- Prepay early – the first third of the tenure is when prepayments save the most.
Prepay vs invest: a quick framework
- Calculate your effective loan rate after tax benefits (only relevant in the old regime for home loans).
- Compare it with the post-tax return you can realistically earn on safe investments.
- If the loan rate is higher, prepay. If it’s lower, consider investing – but remember that loan savings are guaranteed while investment returns are not.
- Many people split the difference: prepay half of their surplus and invest the other half.
Before you prepay
- Confirm whether your lender reduces tenure or EMI by default – ask for tenure reduction.
- Get a revised repayment schedule in writing after every prepayment.
- Pay high-interest debts first: credit cards and personal loans before a home loan.
- For floating-rate loans, check whether your rate is linked to an external benchmark – when rates fall, ask your bank to pass on the cut.
Real-life scenarios
- Bonus prepayment: A one-time ₹3 lakh prepayment in year 2 on a ₹40 lakh, 20-year loan at 8.75% cuts about three years off the tenure.
- Car loan: A ₹8 lakh, 5-year loan at 9.5% has an EMI of about ₹16,800; adding ₹3,000 a month closes it roughly a year early.
- US mortgage: A $350,000, 30-year loan at 6.5% (payment ≈ $2,212) with $200 extra a month saves over $100,000 in interest and finishes years early.
Related calculators
- FD calculator – compare saving vs prepaying
- SIP calculator – invest instead of prepay
- Salary hike calculator – plan EMI increases
FAQs
Can I prepay a car loan?
Usually yes, but fixed-rate car loans often carry a foreclosure or part-prepayment charge of 2–6%. Include that cost when deciding.
Is it better to reduce EMI or tenure?
Reducing tenure saves more interest. Choose EMI reduction only if you need lower monthly outgo.
What is the EMI formula?
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where r is the monthly rate and n the number of months.
Does this work for US mortgages?
Yes – switch the currency to USD. The math for a fixed-rate amortizing loan is the same.