Loan Prepayment Calculator
Discover how prepayments can save you lakhs in interest and reduce your loan tenure
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Everything You Need to Know About Loan Prepayment
Smart Prepayment Strategies
- Prepay in early years when interest component is highest
- Use annual bonuses and increments for prepayment
- Even ₹5,000 extra monthly can save lakhs in interest
- Check prepayment charges - most floating rate loans have zero charges
- Consider tax benefits before prepaying home loans
- Prepay high-interest loans first (credit cards > personal loans > home loans)
- Maintain emergency fund before aggressive prepayment
- Use step-up prepayment - increase amount yearly with salary hikes
How Loan Prepayment Works
What is Prepayment? Prepayment means paying more than your regular EMI to reduce the principal amount faster. This reduces overall interest burden.
Types of Prepayment:
- Part Prepayment: Pay a lump sum amount while continuing EMIs
- Full Prepayment: Close the entire loan before tenure ends
- Regular Prepayment: Pay extra amount monthly/yearly
Interest Savings Formula:
Savings = Original Interest - New Interest After Prepayment
Every rupee prepaid reduces principal, saving compound interest
Impact: Prepayment directly reduces principal, which reduces interest calculation for remaining tenure, creating a compounding savings effect.
Frequently Asked Questions
When is the best time to prepay a loan?
The best time is as early as possible in the loan tenure. In the initial years, EMIs consist mostly of interest. Prepaying during this period saves maximum interest. Also, prepay when you receive bonuses, increments, or windfall gains.
Should I reduce EMI or tenure after prepayment?
Reducing tenure saves more interest and helps you become debt-free faster. Reducing EMI gives immediate cash flow relief but results in paying more interest overall. Choose based on your financial goals and monthly budget.
Are there charges for loan prepayment?
For floating rate home loans, RBI has banned prepayment charges. Fixed rate loans may have 2-4% charges. Personal loans and car loans typically have 2-5% prepayment charges. Always check with your lender.
Should I prepay or invest the surplus money?
Compare loan interest rate with expected investment returns. If loan rate is 9% and you can earn 12% from investments, investing might be better. However, prepayment gives guaranteed savings and peace of mind.
How much can I save through prepayment?
Savings depend on loan amount, interest rate, and prepayment timing. Early prepayment of 10-20% of loan amount can reduce interest by 30-50%. Even small regular prepayments can save lakhs over the tenure.
Will prepayment affect my credit score?
Prepayment doesn't negatively impact credit score. In fact, it shows financial discipline. However, closing all loans might temporarily reduce credit mix. Maintain one long-term loan for credit history.
Complete Loan Prepayment Guide
Master the art of loan prepayment and save lakhs in interest
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