See how extra monthly payments or a lump-sum prepayment can save you lakhs in interest and close your loan years earlier.
Every extra rupee you pay goes directly towards reducing your principal. Since interest is calculated on the outstanding principal, a lower principal means less interest each month. This creates a compounding benefit that shortens your loan significantly.
Both help. A lump-sum prepayment gives an immediate large reduction in principal. Increasing monthly EMI provides steady, sustained savings. If you have surplus cash, a combination of both is ideal. Use this calculator to compare scenarios.
For floating-rate home loans in India, RBI has mandated zero prepayment penalty. For fixed-rate loans and personal loans, banks may charge 2-4% of the prepaid amount. Check your loan agreement for specifics.
The earlier the better. In the initial years of a loan, interest forms a larger portion of each EMI. Prepaying early reduces this interest burden dramatically. Even prepaying in the first 5 years of a 20-year loan can save you 30-40% of total interest.
Compare your loan interest rate with post-tax investment returns. If your loan is at 9% and you can earn 12% post-tax, investing may be better. But loan prepayment gives a guaranteed, risk-free return equal to the interest rate. For most people, a balanced approach works best.