Loan Prepayment Calculator
Calculate exactly how much interest you save by prepaying your home loan, personal loan, or car loan.
Compare reduce-tenure vs reduce-EMI. See the timing impact. Updated June 2026.
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Before vs after prepayment
| Without prepayment | With prepayment | Saving | |
|---|---|---|---|
| EMI | ₹43,391 | ₹43,391 (same) | — |
| Loan tenure | 20 yr | 16 yr | 4 yr less |
| Total interest | ₹54.14 L | ₹38.10 L | ₹16.04 L |
| Total amount paid | ₹1.04 Cr | ₹93.10 L | ₹11.04 L |
Outstanding balance — year by year
Does timing matter? Prepay earlier — save more
Interest saving for a ₹5.0L prepayment at different points — ₹50.0L loan at 8.5% for 20 years
| Prepay at month | Interest saved | Tenure saved | ROI on prepayment |
|---|---|---|---|
| Month 6 | ₹16.80 L | 4 yr 2 mo | 336.1% |
| Month 12your choice | ₹16.04 L | 4 yr | 320.7% |
| Month 24 | ₹14.57 L | 3 yr 9 mo | 291.5% |
| Month 36 | ₹13.20 L | 3 yr 5 mo | 263.9% |
| Month 60 | ₹10.69 L | 3 yr | 213.8% |
| Month 120 | ₹5.71 L | 2 yr | 114.3% |
Earlier prepayments save dramatically more interest because you avoid compounding on a larger outstanding principal.
Should You Prepay Your Home Loan? Complete Guide for 2026
Loan prepayment means paying a lump sum amount over and above your regular EMI to reduce your outstanding principal. Since banks calculate interest on the outstanding balance every month, a lower principal reduces every subsequent month's interest charge - creating a compounding saving effect that can amount to lakhs of rupees over the loan's life.
A 50 lakh home loan at 8.5% for 20 years accumulates 54 lakh in total interest - more than the original loan amount. A single prepayment of 5 lakh in the first year cuts this interest bill by over 10 lakh and closes the loan approximately 3 years early. That is a guaranteed, tax-free return of over 200% on the prepaid amount. No fixed deposit, no bond, and very few equity investments provide a comparable risk-adjusted return.
This guide explains exactly how prepayment saves interest, when to prepay, how timing affects your savings, what banks charge, and how to decide between prepayment and investment.
How loan prepayment works mathematically
Every home loan EMI has two components: interest charged on the outstanding principal, and a principal repayment portion. In the early years of a 20-year loan, roughly 70 to 80% of each EMI is interest and only 20 to 30% reduces the principal. This is why prepayment in the early years saves so much more than prepayment later.
Worked example: 50 lakh at 8.5% for 20 years - impact of a 5 lakh prepayment at different times
| Prepay at | Outstanding balance at that point | Interest saved | Tenure reduced | Effective return on 5L prepayment |
|---|---|---|---|---|
| Month 6 | 49.7L | 10.8L | 3 yr 4 mo | 216% |
| Month 12 | 49.4L | 10.2L | 3 yr 1 mo | 204% |
| Month 24 | 48.7L | 9.1L | 2 yr 8 mo | 182% |
| Month 60 | 46.3L | 6.8L | 1 yr 11 mo | 136% |
| Month 120 | 40.5L | 4.0L | 1 yr 1 mo | 80% |
| Month 180 | 29.0L | 1.5L | 5 mo | 30% |
Effective return = interest saved divided by prepayment amount x 100. Figures are approximate, reduce-tenure mode. Prepaying in Month 6 saves 2.16x the prepaid amount in interest - a return that far exceeds most alternative investments.
The dramatic difference between early and late prepayment is explained by one concept: the outstanding balance. In Month 6, the outstanding balance is nearly 50 lakh, so every rupee of principal eliminated removes interest on 50 lakh for the remaining tenure. By Month 180, the balance is 29 lakh and the remaining tenure is short - there is simply less compounding left to eliminate.
Reduce tenure vs reduce EMI - which option wins?
After a prepayment, your bank will offer two options for how to apply the benefit. Most people instinctively choose lower EMI because it provides immediate monthly relief. But the numbers consistently show that reducing tenure produces larger total savings. Here is exactly why.
Head-to-head comparison: 5 lakh prepayment in Month 12 on a 50 lakh loan at 8.5% for 20 years
Verdict: Reduce tenure saves 10.2 lakh vs 5.5 lakh for reduce EMI - nearly double. The reason is simple: reducing tenure eliminates years of future EMIs entirely. Reducing EMI keeps you paying for 20 years, just at a slightly lower amount per month. Choose reduce EMI only if the lower monthly outgo is genuinely necessary for your budget.
The annual prepayment strategy - using your bonus to close the loan early
Rather than waiting to accumulate a large sum for one prepayment, many salaried borrowers do better by prepaying the entire annual bonus every year. Even a moderate bonus applied systematically can dramatically compress a 20-year loan.
| Annual prepayment | Effective tenure | Tenure reduced by | Interest saved | ROI on total prepayments |
|---|---|---|---|---|
| No prepayment | 20 yr 0 mo | - | Baseline | - |
| 50,000/year | 17 yr 2 mo | 2 yr 10 mo | 7.8L | 155% |
| 1,00,000/year | 14 yr 11 mo | 5 yr 1 mo | 13.6L | 136% |
| 1,50,000/year | 13 yr 2 mo | 6 yr 10 mo | 17.9L | 119% |
| 2,00,000/year | 11 yr 10 mo | 8 yr 2 mo | 21.4L | 107% |
| 3,00,000/year | 10 yr 0 mo | 10 yr 0 mo | 26.9L | 90% |
Figures for a 50 lakh home loan at 8.5% starting rate. Annual prepayment assumed at end of each year. ROI on total prepayments = total interest saved divided by total prepayments made x 100. A 1 lakh annual prepayment over the actual tenure cuts a 20-year loan to under 15 years.
Should you prepay your loan or invest the money?
This is the most debated personal finance question among Indian home loan borrowers. Both prepayment and investment have merits, and the right answer depends on your loan rate, investment discipline, tax situation, and risk appetite.
The core principle is straightforward: prepayment earns a guaranteed, risk-free return equal to your loan interest rate. This return is after-tax in most cases because home loan interest is not deductible under the new income tax regime, which most salaried employees now use. Investment must beat this hurdle rate on an after-tax basis to be the better choice.
| Home loan rate | Guaranteed return from prepayment | Investment alternative | Better choice | Reasoning |
|---|---|---|---|---|
| Below 7% | Under 7% | Bank FD at 7 to 7.5%; debt mutual fund | Invest | FD beats loan cost; prepayment return is below risk-free rate |
| 7% to 8% | 7 to 8% | FD at 7%; equity SIP at 12%+ | Split 50:50 | Debt investments roughly match; equity likely better long term |
| 8% to 9% | 8 to 9% | Equity SIP (pre-tax 12 to 14%) | Lean prepayment | Equity post-tax return of 10 to 11% marginally exceeds loan cost, but is not guaranteed |
| 9% to 12% (personal loan) | 9 to 12% | Any investment option | Prepay first | Guaranteed return of 9 to 12% beats most investment options on a risk-adjusted basis |
| Above 12% (personal or credit card) | 12%+ | Any | Prepay immediately | No investment reliably clears 15%+ after tax. Clearing this debt is your best financial move |
If your home loan rate is 8.5 to 9% and you are on the new income tax regime (no Section 24b deduction), prepayment earns a guaranteed after-tax return of 8.5 to 9%. A diversified equity SIP has historically returned 12 to 14% pre-tax, but the LTCG tax of 12.5% above 1.25 lakh per year and the volatility mean real-world after-tax outcomes are closer to 10 to 11%. The 1 to 2% advantage of equity over prepayment comes with significant uncertainty. A sensible middle path: prepay enough annually to compress your loan tenure to 10 to 12 years, then direct remaining surplus to a SIP.
The tax angle - does prepayment affect your Section 80C and 24b benefits?
This is a legitimate concern for borrowers on the old income tax regime. Prepaying reduces your outstanding balance, which means lower interest charges going forward. That is the point - but it does reduce your annual interest deduction under Section 24b. Here is how to think about each deduction.
The principal portion of your regular EMI qualifies for 80C deduction up to 1.5 lakh per year. A prepayment is an additional principal repayment and also counts toward this limit. However, the 80C limit is commonly already fully utilised by EPF, PPF, ELSS, or insurance premiums. If your 80C is already maxed out, the prepayment creates no incremental tax benefit or loss - it is neutral on the 80C front.
Under the old regime, interest paid on a home loan for a self-occupied property is deductible up to 2 lakh per year under Section 24b. Prepayment reduces your outstanding balance, which reduces future interest charges, which in turn reduces your Section 24b deduction. Example: if prepayment drops your annual interest from 4 lakh to 3 lakh, you lose 1 lakh in deduction value - worth 30,000 at the 30% tax bracket. But the interest actually saved is far larger. For most borrowers at standard income levels, the net benefit of prepayment still vastly exceeds the lost deduction.
If you are on the new income tax regime (which is now the default and is the better option for most salaried individuals in 2026), home loan interest is not deductible at all. Section 80C deductions are also unavailable. This means prepayment has zero negative tax consequence for new regime borrowers. The full interest saving from prepayment flows directly to your pocket with no tax offset. New regime borrowers have the clearest case for aggressive prepayment.
Prepayment and foreclosure charges - what Indian banks actually charge
Understanding prepayment charges is essential before planning your strategy. The rules differ significantly by loan type, interest rate type, and whether the borrower is an individual or a company.
| Loan type | Floating rate charge | Fixed rate charge | Lock-in period | Key rule |
|---|---|---|---|---|
| Home loan (individual borrower) | Nil - RBI mandated | 1 to 2% of prepaid amount | None mandated | RBI 2012 circular: no charges on floating rate loans to individuals |
| Home loan (company or HUF borrower) | 0 to 2% of prepaid amount | 2 to 3% | 6 to 12 months | Companies do not benefit from RBI's individual borrower protection |
| Personal loan | 2 to 5% of outstanding | 2 to 5% of outstanding | 6 to 12 EMIs | Most personal loans are fixed rate; charges always apply after lock-in |
| Car loan | 0 to 2% | 1 to 3% | 6 months typical | Some lenders allow zero-penalty foreclosure; check sanction letter |
| Loan against property (LAP) | 0 to 2% | 1 to 3% | 12 months typical | Similar treatment to home loans for individual borrowers |
| Education loan | Nil (RBI guidelines) | 0 to 2% | No standard lock-in | PSU bank education loans typically have no prepayment charges |
Always verify the exact prepayment terms in your loan sanction letter before executing a prepayment. For disputes about charges on floating rate individual home loans, file a complaint with RBI's Integrated Ombudsman at cms.rbi.org.in.