See how a lump-sum or extra monthly payment cuts your loan interest and tenure.
How prepayment helps
A lump-sum or extra monthly payment reduces the outstanding principal immediately, so all the future interest that balance would have earned is saved. Keeping your EMI the same after a prepayment shortens the loan; reducing the EMI keeps the tenure but lowers the monthly outgo.
What a prepayment actually does
Every rupee you prepay comes straight off the outstanding principal, so all future interest on that rupee disappears. You then choose between two options:
- Keep the EMI, cut the tenure — saves the most interest.
- Keep the tenure, cut the EMI — frees up monthly cash but saves less.
Worked example
A ₹30 lakh home loan at 8.5% for 20 years has an EMI of ₹26,035. A one-time prepayment of ₹2 lakh after three years, keeping the same EMI, saves about ₹5.6 lakh of interest and ends the loan about 29 months early. The same ₹2 lakh prepaid in year 15 saves far less, because by then most of the interest has already been paid.
Prepayment charges
Under RBI’s Pre-payment Charges on Loans Directions, 2025, lenders cannot levy foreclosure or part-payment charges on floating-rate loans taken by individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026 (floating-rate home loans were already exempt). Fixed-rate loans can still carry a fee — check your loan agreement. See prepayment and foreclosure rules.
Prepay or invest?
Prepaying a loan earns a guaranteed return equal to its interest rate. That makes it an easy win for personal loans and credit card debt (13–42%). For a home loan at 8–9%, long-term equity investing may earn more, but with risk — and you also lose part of the tax deduction on interest if you claim it under the old regime. Our guides on prepaying vs investing and home loan prepayment strategy work through the trade-off.
FAQs
Is there a minimum prepayment amount?
Some banks ask for at least one or two EMIs per part-payment; many allow any amount online.
Will prepaying reduce my EMI automatically?
Most banks reduce the tenure by default. Ask in writing if you want a lower EMI instead.
Does prepaying affect my credit score?
Not negatively. Closing a loan early is reported as closed and paid in full.
Figures last checked October 2026. Calculator results are estimates; actual lender, fund or tax outcomes can differ.