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What is a loan prepayment?
A prepayment (or part-payment) is money you pay towards your loan on top of your regular EMIs. It goes straight to reducing the principal, so every later month's interest is smaller. You can prepay a lump sum, such as a bonus, or pay a little extra every month.
After a lump-sum prepayment, the bank either keeps your EMI and shortens the tenure, or keeps the tenure and lowers the EMI. This calculator shows both.
Example: ₹25 lakh outstanding at 8.5%, 15 years left
The EMI is ₹24,618, and the interest still to be paid is ₹19,31,328.
| What you do | Monthly payment | Loan ends in | Interest saved |
|---|---|---|---|
| Nothing | ₹24,618 | 15 years | — |
| Prepay ₹2 lakh, keep EMI | ₹24,618 | 12 years 10 months | ₹4,50,426 |
| Prepay ₹2 lakh, lower EMI | ₹22,649 | 15 years | ₹1,54,506 |
| Pay ₹2,000 extra every month | ₹26,618 | 13 years | ₹3,04,070 |
| Pay ₹5,000 extra every month | ₹29,618 | 10 years 10 months | ₹6,08,529 |
| ₹2 lakh now + ₹2,000 extra every month | ₹26,618 | 11 years 3 months | ₹6,60,514 |
The same ₹2 lakh saves almost three times as much interest when you keep the EMI and shorten the tenure. Lower the EMI only if the current EMI is hard to manage.
Reduce EMI or reduce tenure?
- Reduce tenure (keep EMI): the most interest saved and you are debt-free sooner. Best if your EMI is comfortable.
- Reduce EMI (keep tenure): frees up money every month, but saves much less interest. Useful if your budget is tight.
Many banks apply "reduce tenure" by default; ask for the option you want in writing when you prepay.
Rules and charges
- Floating-rate loans: RBI rules do not allow banks to charge prepayment or foreclosure penalties on floating-rate loans taken by individuals for purposes other than business.
- Fixed-rate loans: a charge (often 2–4% of the amount prepaid) may apply; check your loan agreement.
- Early years matter most: interest is highest at the start of a loan, so a prepayment in the first few years saves the most.
Prepay or invest?
- Keep an emergency fund first (3–6 months of expenses) before putting spare money into the loan.
- Compare rates: prepaying a loan at 9% is like earning a guaranteed 9% on that money. If your investments are unlikely to beat that after tax, prepaying usually wins.
- Tax on home loans: under the old tax regime, interest on a home loan for a self-occupied house is deductible up to ₹2 lakh a year, and principal repayment counts towards the ₹1.5 lakh tax-saving deduction (section 123 of the Income-tax Act, 2025; earlier section 80C). Prepaying reduces the interest you can claim, so the effective saving is a little lower if you use these deductions. The new tax regime has no such deduction for a self-occupied house.
Frequently asked questions
How much interest will I save by prepaying ₹1 lakh?
It depends on your balance, rate and remaining tenure. Enter your figures above. As a guide, on a ₹25 lakh loan at 8.5% with 15 years left, ₹2 lakh prepaid now while keeping the EMI saves about ₹4.5 lakh of interest.
Is it better to prepay once or pay extra every month?
Both help, and the earlier the money reaches the loan, the more it saves. A small extra amount every month is easier to keep up and adds up: ₹2,000 a month in the example above saves over ₹3 lakh.
Will my EMI change after a part-payment?
Only if you ask the bank to lower it. By default, many banks keep the EMI and shorten the tenure. Tell the bank your choice when you make the prepayment.
Is there a penalty for prepaying a home loan?
Not on a floating-rate loan taken by an individual for non-business purposes. Fixed-rate loans may carry a charge, so check your loan agreement.
Is the information I enter saved anywhere?
No. The calculation happens entirely in your browser. Nothing you enter is sent to our server or stored.