Loan Prepayment Calculator

What a part payment does to a loan

Every EMI on a reducing balance loan is split in two: interest on the balance still owed, and principal that brings the balance down. A part payment goes straight to principal. With a smaller balance, every later month charges less interest, and that saving repeats for the rest of the loan. The lender then asks you to choose what to do with the room it creates. You can keep paying the same EMI so the loan ends sooner, or keep the same end date and pay a lower EMI. This calculator runs your loan month by month both ways and shows the interest saved in each case.

How to use it

1. Enter the balance still outstanding today (your latest loan statement shows it), the current rate, and the number of EMIs left.
2. Enter the part payment. Leave "after EMI number" at 0 if you are paying it now, or enter how many more EMIs you will pay first.
3. If you plan to prepay a fixed sum every year, for example from a bonus, enter it as the yearly extra payment. It is applied after every twelfth EMI.
4. Choose reduce tenure or reduce EMI. The note under the results always compares both.

How it is calculated

The current EMI is worked out from the balance, rate and remaining months with EMI = P x r x (1 + r)^n / ((1 + r)^n - 1), r being the yearly rate divided by 1,200. Each month the calculator adds interest of balance x r, takes the EMI, and lowers the balance by the principal part. A prepayment is taken off the balance in the month it is made. In reduce tenure mode the EMI stays the same and the loan simply ends earlier; the last EMI is smaller. In reduce EMI mode the EMI is worked out again on the new balance over the months still left, using the same formula. Interest saved is the interest of the loan with no prepayment minus the interest with it.

A worked example

You owe ₹25,00,000 at 8.5% with 180 EMIs (15 years) left. The EMI is ₹24,618 and, if you change nothing, you will pay ₹19,31,328 of interest. Now you prepay ₹3,00,000 today.

If you keep the EMI at ₹24,618, the loan ends after 143 EMIs instead of 180, which is 37 months (3 years 1 month) sooner, and you save ₹6,35,199 of interest. If you lower the EMI instead, it drops to ₹21,664 for the same 180 months and the saving is ₹2,31,759. Same ₹3,00,000, but shortening the loan saves almost three times as much, because the balance keeps falling at the old, faster pace.

Add a ₹50,000 prepayment every year on top and, keeping the EMI, the loan closes after 112 EMIs with ₹9,25,755 of interest saved.

Choosing between the two

Reducing tenure almost always saves more interest. Reducing the EMI is worth it when your monthly budget is tight, or when a lower fixed outgo matters more to you than a bigger total saving. A prepayment made early in the loan saves more than the same amount made later, because more months of interest are still ahead of it.

Assumptions and limits

• The rate stays the same for the rest of the loan. On a floating rate loan the actual saving will move with the rate.
• Some lenders charge a prepayment fee or set a minimum part payment; neither is included. Check your loan agreement.
• Tax benefits on home loan interest or principal are not part of the saving shown.