How loan prepayment works
Making a lump-sum payment toward your outstanding principal reduces the base on which future interest is calculated. You can choose to use this saving in one of two ways: keep your EMI the same and finish the loan sooner (reducing tenure), or keep the original tenure and reduce your monthly EMI instead. Our calculator shows both outcomes side by side.
Worked example
On a ₹30 lakh loan at 8.5% over 15 years, a ₹5 lakh prepayment made early in the tenure can shave a meaningful number of months off your repayment schedule and reduce total interest paid — the earlier the prepayment is made, the greater the interest saving, since more of your future EMIs would otherwise have gone toward interest.
Factors that affect your savings
- Timing — prepaying earlier in the tenure saves more interest than prepaying later
- Prepayment amount — a larger lump sum reduces the principal base more significantly
- Remaining tenure — longer remaining tenures generally see larger absolute interest savings
Are there charges for prepaying a loan?
This depends on your lender's policy and the type of interest rate (floating loans typically have no prepayment penalty for individual borrowers, per RBI guidelines). Confirm the exact terms with your lender before prepaying.
Should I reduce my EMI or my tenure?
Reducing tenure while keeping the EMI the same generally saves more total interest. Reducing the EMI instead can help if you need more monthly cash flow flexibility. A LoanGuy Fintech expert can help you weigh this based on your situation.