ReckonBoxHow 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 Rs 30,00,000 loan at 9% for 20 years, the EMI is Rs 26,992 and the interest over the full term is Rs 34,78,080. Pay a one-time Rs 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.
| Strategy | Monthly EMI | Tenure | Total interest |
|---|---|---|---|
| Without prepayment | Rs 26,992 | 20 yr | Rs 34,78,080 |
| Reduce tenure (keep EMI) | Rs 26,992 | 13 yr 9 mo | Rs 19,29,186 |
| Reduce EMI (keep tenure) | Rs 22,407 | 20 yr | Rs 29,32,700 |
The gap is the whole point. Reducing the tenure saves about Rs 15,48,900 of interest and ends the loan more than six years early. Reducing the EMI saves about Rs 5,45,400 and pulls the payment down to Rs 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.
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.
Timing matters more than most people expect. The same Rs 5,00,000 removes far more future interest in year one than in year eight, because early on the balance is large and almost all of each EMI is interest. A bonus prepaid in the first year does more work than the identical amount paid later.
Is there a penalty
For a floating-rate home loan taken by an individual, the Reserve Bank of India allows no prepayment or foreclosure penalty, a rule in force since 2014 for both banks and housing finance companies. So on a normal floating home loan you keep every rupee the calculator shows. Fixed-rate home loans and some personal loans are different: they may levy about 2% to 4% of the amount prepaid, and the penalty field lets you enter that so the saving is shown net of it.
One caution worth flagging, because a few calculators get it wrong: prepaying a floating-rate home loan is always allowed, penalty free. If a page tells you otherwise, it's out of step with the RBI rule.
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.
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 Rs 30,00,000 loan at 9% for 20 years, a one-time Rs 5,00,000 prepayment at month 12 saves about Rs 15,48,900 of interest and ends the loan more than 6 years early if you keep the EMI the same.
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 Rs 15,48,900 of interest while the reduce-EMI choice saves about Rs 5,45,400 but lowers the monthly payment from Rs 26,992 to Rs 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 home loan? For a floating-rate home loan taken by an individual, the Reserve Bank of India allows no prepayment or foreclosure penalty, a rule in force since 2014 for banks and housing finance companies. Fixed-rate home loans and some personal loans may charge about 2% to 4% of the amount prepaid, so enter that in the penalty field to see the saving net of it.
Does it matter when I make the prepayment? Prepaying earlier saves more, because the outstanding balance and the interest still ahead are both larger early in the loan. The same Rs 5,00,000 removes far more future interest in year 1 than in year 10, which is why a lump sum from an early bonus is worth so much.
Can I prepay a little every month instead of a lump sum? Yes, a recurring extra payment each month works like many small prepayments and shortens the tenure steadily. 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 Rs 5,00,000 prepayment wipes out about Rs 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.