Priyanka Personal Finance
Smart Money · Simple Words · India
Smart Money · Simple Words · India
Paying a little extra on your home, car or personal loan can save you lakhs and finish it years early. Enter your loan and see exactly how much interest you save and how much sooner you'll be debt-free.
Estimate only · Not financial advice · Assumes a fixed interest rate & that the lump sum is paid now · Actual figures depend on your bank's terms & reset dates
Interest on a loan is charged on the outstanding balance. When you pay extra — a higher EMI, or a one-time lump sum from a bonus — that money goes straight against the principal, so from the next month you're charged interest on a smaller balance. On a long home loan the effect compounds: a modest ₹5,000 extra a month can cut several years and lakhs of rupees off the total interest. The earlier you start, the bigger the saving.
If your loan rate is higher than the return you can reliably earn after tax, prepaying gives a guaranteed, risk-free saving equal to your loan rate. If you can confidently earn more by investing (for example, long-term equity SIPs) and are comfortable with the risk, investing may build more wealth. Note that floating-rate home loans to individuals have no prepayment charges as per RBI rules. Compare with our SIP Calculator before deciding.
Interest is charged on your outstanding balance. When you pay extra — either a higher EMI or a lump sum — that money reduces the principal directly, so less interest accrues every month afterwards. Over a long home loan this can save several lakhs and finish the loan years early.
Early. In the first years, most of your EMI goes toward interest, so prepayments in the early years cut the most interest. The same prepayment near the end of the tenure saves far less.
For floating-rate home loans to individuals, banks cannot charge prepayment or foreclosure fees as per RBI rules. Fixed-rate loans, and some car or personal loans, may charge 1–4%. Always check your loan agreement.
If your loan rate is higher than the after-tax return you can reliably earn, prepaying gives a guaranteed saving. If you can earn more by investing (e.g. long-term equity) and are comfortable with risk, investing may build more wealth. Many people do a mix.