See how much interest you save with prepayment
A salary hike, a year-end bonus, a maturing FD โ whenever extra money lands in your account, one of the smartest things you can do is make a part payment on an outstanding loan. The interest saved is often far greater than what an FD would earn. But most people don't run the numbers. This calculator shows exactly what a lump sum payment does to your outstanding loan.
When you make a part payment, the amount goes directly toward reducing your principal outstanding. Since EMI interest is calculated on the outstanding principal, a lower principal immediately reduces the interest in every future EMI. After a part payment, you have two choices: keep the EMI the same and shorten the tenure, or reduce the EMI and keep the tenure. Keeping the EMI and shortening the tenure saves significantly more interest.
Home loan โน50 lakhs at 9% for 20 years. 3 years in, you make a โน5 lakh part payment and keep the EMI same. Without part payment: โน34 lakh interest remaining. With โน5 lakh part payment: tenure cuts by ~2.5 years, interest saved โน8โ9 lakh. You spent โน5 lakh and saved โน8โ9 lakh. No FD comes close to that guaranteed return.
Early in the tenure is when part payment has maximum impact โ the outstanding principal is largest, so the interest saving per rupee prepaid is highest. For floating rate home loans, banks in India cannot charge prepayment penalty for individual borrowers. For fixed rate loans, foreclosure charges are usually 2โ4%. Always check your loan agreement. To see your full amortisation schedule, our home loan calculator shows year-by-year breakdowns including part payment scenarios.
If you can afford the current EMI comfortably, always choose to reduce tenure. You'll save significantly more interest because you exit the loan earlier. Reduce EMI only if the current EMI is genuinely straining your budget.
Yes โ making a part payment every year from your annual bonus is often the best strategy. Each payment reduces the base on which future interest accrues, and the benefits compound over time.
Different banks have different policies โ some require minimum 1 EMI amount, others specify โน10,000 or โน50,000 minimum. Check with your lender. Even smaller amounts are accepted and still reduce principal and future interest.
Part payment doesn't negatively affect your CIBIL score โ reducing outstanding debt is generally positive for your credit profile. What hurts the score is missed or delayed payments, not prepayment.