Loan prepayment calculator

How the loan prepayment calculator works

A loan prepayment is any amount you pay toward the principal on top of your EMI, and because interest is charged only on the balance still owed, every rupee of principal you clear early removes all the future interest it would have carried. This calculator takes your outstanding loan, its rate and tenure, and a prepayment, then shows the two choices a lender gives you: keep the EMI and finish the loan early, or keep the tenure and drop the monthly payment.

Run the default. On a ₹30,00,000 loan at 9% for 20 years, the EMI is ₹26,992 and the interest over the full term is ₹34,78,080. Pay a one-time ₹5,00,000 toward the principal at month 12 and the numbers move sharply, in different directions depending on which choice you make.

Reduce the tenure or reduce the EMI

When you prepay, the lender lets you either keep the EMI the same and shorten the tenure, or keep the tenure the same and recompute a lower EMI, and the two are not equal. Keeping the EMI and cutting the tenure saves far more interest, because the higher payment keeps retiring principal fast. Cutting the EMI instead eases your monthly cash flow but leaves the loan running the full term, so more interest accrues.

The gap is the whole point. Reducing the tenure saves about ₹15,48,900 of interest and ends the loan more than six years early. Reducing the EMI saves about ₹5,45,400 and pulls the payment down to ₹22,407, which is a lighter monthly load but roughly a third of the interest saving. If you can carry the current EMI, tenure reduction is the cheaper path; if the monthly figure is a strain, the EMI cut is the relief.

One practical point the comparison hides: the lender often picks for you. Tenure reduction is the common default, which happens to be the cheaper option, so silence usually works in your favour. If you want the EMI recut instead, you generally have to ask for it, and some lenders recompute only on request and in writing.

The formula behind it

The EMI itself is P times r times (1 + r) to the power n, divided by (1 + r) to the power n minus 1, where P is the principal, r the monthly rate and n the number of months. A prepayment simply lowers P partway through. In reduce-tenure mode the EMI stays fixed and the balance hits zero in fewer months. In reduce-EMI mode the formula is run again on the smaller balance over the remaining months, which yields a lower EMI. The calculator simulates the loan month by month, so the schedule and the interest match what a bank would compute. The schedule above it shows every one of those payments, grouped into years you can open, and downloads as a CSV or an Excel file if you want to keep it or check it against the statement your lender sends.

Timing matters more than most people expect, because early on the balance is large and almost all of each EMI is interest. The same ₹5,00,000 on the default loan, keeping the EMI:

Seven times the saving at month 12 as at month 180, for the identical rupee. A bonus prepaid in the first year does more work than the same amount paid later, and the gap is wider than most borrowers guess.

A lump sum or a little every month

Paying extra every month is easier to arrange than a lump sum, and on the same loan it buys less, because the money arrives later. Both routes are in the calculator, and setting them against each other is the clearest way to see what timing is worth.

The monthly route puts in ₹3,15,000 more cash and saves ₹2,73,114 less. It still finishes the loan two months sooner, because it keeps paying for 163 months, but every rupee works less hard for having arrived later.

That is not an argument against a monthly extra, which is the only route most people can actually manage. It is an argument for sending a windfall the moment it lands rather than spreading it. For reference, at this loan's numbers: ₹2,000 a month saves ₹6,71,719 and 39 months, and ₹10,000 a month saves ₹18,38,684 and closes the loan in 10 yr 6 mo.

Is there a penalty

Since 1 January 2026 a lender cannot charge you for prepaying a floating-rate loan taken for any purpose other than business, under the RBI (Pre-payment Charges on Loans) Directions, 2025. That is wider than the rule it replaced, and the difference matters here: the older position, in force from 2014, covered floating-rate home loans, while the Directions reach any floating-rate loan an individual takes for a non-business purpose.

The limits are worth reading before you count on it:

• It applies irrespective of where the money came from, to part prepayment as well as full foreclosure, and with no minimum lock-in.
• It covers floating-rate loans only. A fixed-rate loan sits outside it, and on a dual-rate loan what counts is which rate applies on the day you prepay.
• It binds loans sanctioned or renewed on or after 1 January 2026. An older floating-rate home loan still has the 2014 protection; an older floating-rate personal or car loan may not.

Where a charge is still allowed, on a fixed-rate loan, published bands run from 0% to 3% at public sector banks and 1% to 4% at private banks, up to 2% to 5% at NBFCs and fintech lenders. The penalty field above takes whatever your agreement says, so the saving is shown net of it.

What you are entitled to when the rate resets

A separate rule governs a different moment, and the two are easy to confuse. When a floating rate resets, RBI circular RBI/2023-24/55 of 18 August 2023 requires your lender to offer you the choice of "enhancement in EMI or elongation of tenor or for a combination of both options", and the option "to prepay, either in part or in full, at any point during the tenor of the loan".

So the EMI-against-tenure decision is yours by right at a rate change. After a voluntary prepayment it is not: that is lender practice, and tenure reduction is the usual default.

What this does not decide for you

This tool shows what a prepayment saves in interest and time, using the reducing-balance math a bank applies. It does not tell you whether to prepay at all. A prepayment gives a guaranteed return equal to your loan rate, while investing the same money carries risk and a return you can't know in advance, so the better move depends on the rates, your taxes and your own situation. Treat the figures here as one input to that decision, not advice, and confirm your loan's exact terms with your lender. The comparison it invites is against investing the same amount, and what a monthly SIP compounds to over the remaining tenure puts a number on the other side of it.

Frequently asked questions

What is a loan prepayment calculator? A loan prepayment calculator shows how much interest and time you save by paying extra toward the principal of a reducing-balance loan. On a ₹30,00,000 loan at 9% for 20 years, a one-time ₹5,00,000 prepayment at month 12 saves about ₹15,48,900 of interest and ends the loan more than 6 years early if you keep the EMI the same.

Does the bank choose between reducing my EMI and reducing my tenure? Usually, unless you say otherwise. Tenure reduction is the common default after a voluntary part-payment, which is the cheaper option anyway, and an EMI recut generally has to be requested. The position is different when a floating rate resets: RBI circular RBI/2023-24/55 of 18 August 2023 requires the lender to offer you a higher EMI, a longer tenure or a combination, and to let you prepay in part or in full at any point in the loan.

Should I reduce the tenure or reduce the EMI when I prepay? Reducing the tenure saves far more interest than reducing the EMI, because keeping the EMI high clears the principal faster. On the default loan, the reduce-tenure choice saves about ₹15,48,900 of interest while the reduce-EMI choice saves about ₹5,45,400 but lowers the monthly payment from ₹26,992 to ₹22,407. Pick tenure to save the most, or EMI if you need monthly cash flow relief.

What is the difference between prepayment and part-payment? A part-payment is a prepayment that clears only some of the outstanding principal while the loan continues, whereas a full prepayment or foreclosure clears the whole balance and closes the loan. This calculator handles a part-payment through the one-time and recurring prepayment fields, and shows the interest saved either way.

Is there a penalty for prepaying a loan? Since 1 January 2026, under the RBI (Pre-payment Charges on Loans) Directions, 2025, a lender cannot charge for prepaying a floating-rate loan taken by an individual for any purpose other than business, irrespective of the source of the funds, for part prepayment as well as full foreclosure, and with no minimum lock-in. That is wider than the 2014 rule it replaced, which covered floating-rate home loans. It binds loans sanctioned or renewed on or after 1 January 2026, so an older loan keeps its original position. Fixed-rate loans are outside it and may be charged 0% to 5% of the amount prepaid depending on the lender, which the penalty field takes.

Does it matter when I make the prepayment? A great deal. On the default loan, ₹5,00,000 paid at month 12 saves ₹15,48,894 of interest and ends the loan 75 months early, where the same ₹5,00,000 paid at month 180 saves ₹2,11,080 and ends it 26 months early. That is seven times the saving for the identical rupee, because early in the loan the balance is large and almost all of each EMI is interest.

Can I prepay a little every month instead of a lump sum? Yes, and it is the route most people can actually manage, but it buys less per rupee because the money arrives later. On the default loan, ₹5,000 every month puts in ₹8,15,000 across 163 months and saves ₹12,75,780, where a single ₹5,00,000 at month 12 puts in ₹3,15,000 less and saves ₹2,73,114 more. Enter an amount in the extra-every-month field and it adds to the reduce-tenure result, on top of any one-time lump sum.

How much interest does prepaying actually save? Because interest is charged on the balance still outstanding, every rupee of principal you clear early removes all the future interest that rupee would have carried. On the default loan a single ₹5,00,000 prepayment wipes out about ₹15,48,900 of interest over the life of the loan, roughly 45% of the total interest.

Is prepaying always better than investing the money? Prepaying gives a guaranteed return equal to your loan rate, while investing carries risk and a variable return, so which comes out ahead depends on the rates and your own situation. This tool shows what prepaying saves so you can compare it against an expected investment return yourself, and it is not a recommendation either way.

Sources

• Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025
• Reserve Bank of India, Reset of Floating Interest Rate on EMI based Personal Loans, RBI/2023-24/55
• HomeFirst, lenders default to tenure reduction and an EMI cut must be requested
• Reserve Bank of India, no foreclosure charges on floating-rate term loans
• fintoolbaba, loan prepayment worked example and formula
• sum.money, home loan prepayment and the RBI floating-rate rule