Work out what prepaying saves
Prepayment calculator
Change any figure and the results update as you type. Nothing is sent anywhere and nothing is stored.
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Shorten the loan, or lower the EMI?
This is the only decision that matters once you have decided to prepay, and lenders will usually propose the second one because it is the one that earns them more.
Keep the EMI, shorten the loan. Your instalment stays the same and the loan simply ends earlier. Because interest is charged on the outstanding balance every month, cutting months off the end removes the interest those months would have carried. This saves the most.
Keep the tenure, lower the EMI. The loan still runs its full course and you pay a smaller instalment. This frees up monthly cash but leaves the balance sitting there for the same number of months, earning the lender interest.
Run both in the table above. On a typical mid-size loan the gap between the two options is usually tens of thousands of rupees, in favour of shortening.
Did you know?
The RBI does not permit foreclosure or prepayment charges on floating-rate loans taken by individuals for non-business purposes. Most personal loans are fixed-rate and fall outside that, but not all — and many lenders waive the charge voluntarily after twelve instalments. Before assuming you will pay 2% to 5%, read your sanction letter or ask the lender in writing. It changes the arithmetic completely.
When prepaying is the wrong move
- When it empties your emergency fund. Money in the loan cannot be taken back out. Three to six months of expenses should stay liquid before any prepayment.
- When you have costlier debt. A credit card at 36% or a revolving overdraft should always be cleared before a personal loan at 14%.
- Very late in the tenure. In the final year most of each EMI is principal, so there is little interest left to save — and a charge on the prepayment can wipe out the benefit.
- When the charge exceeds the saving. The calculator flags this. It happens on small prepayments against high charges.
Expert insight
Prepay early in the tenure, not late. A personal loan is front-loaded with interest — in the first year most of your EMI is interest and very little touches the principal. The same ₹1 lakh put in during year one of a five-year loan can save two to three times what it saves in year four. If you are choosing between prepaying now and prepaying after a bonus in eight months, now is usually worth more than the extra amount you would have later.
How to actually make the prepayment
Ask the lender in writing for the current outstanding and the exact charge before transferring anything, since interest accrues daily and the figure in your app may be a day or two stale. Make the payment through the loan account, not to a person or a branch account. Then ask for two things afterwards: a revised repayment schedule showing the new tenure or EMI, and confirmation that your standing instruction has been updated so the old EMI is not debited again.
If you are clearing the loan entirely rather than partly, ask for a no-dues certificate and check your credit report after 45 days — a loan that stays open on the bureau after closure is one of the more common reasons a later application is assessed on obligations you no longer have.
Please note
This calculator uses standard reducing-balance amortisation and the figures you enter. Your lender's actual computation may differ slightly depending on the day of the month and how it applies charges. Nothing here is a quote or advice on your particular circumstances — check your sanction letter and confirm the charge with your lender before acting.
Questions this page gets asked
Is it better to reduce the EMI or the tenure?
Reducing the tenure saves more, usually by a wide margin, because the balance stops earning interest sooner. Reduce the EMI only if the monthly cash flow is your actual problem.
What charge will I pay to prepay?
Commonly 2% to 5% of the amount prepaid, plus GST. Many lenders waive it after twelve instalments, and floating-rate loans to individuals for non-business purposes cannot be charged at all.
Can I prepay any amount I like?
Most lenders set a minimum, often one or two EMIs, and some cap how much you may prepay in a year. The terms are in your sanction letter.
When in the loan is prepayment worth most?
Early. Personal loans are front-loaded with interest, so a prepayment in year one saves far more than the same amount in year four.
Does prepaying improve my CIBIL score?
Closing a loan cleanly helps over time, though the immediate effect is small and sometimes slightly negative because your credit mix changes. It is a good financial move, not a scoring trick.
Should I prepay or invest the money instead?
Compare the loan rate with what you would earn after tax. A personal loan at 14% is a guaranteed 14% return, which is difficult to beat safely.
Will the lender reduce my EMI automatically?
Usually yes, because it is the default that suits them. If you want the tenure shortened instead, say so in writing at the time of payment.
What should I collect after a full prepayment?
A no-dues certificate, a closure letter, and confirmation the standing instruction is cancelled. Check your credit report after about 45 days to see the loan marked closed.
Conclusion
Prepaying is one of the few personal finance decisions with a guaranteed return, and the return is your interest rate. The two things that decide how large it is are timing and which option you choose — early beats late, and shortening the loan beats shrinking the instalment.
Before you transfer anything, confirm the charge in writing and keep your emergency fund intact. Then ask for the tenure to be cut, not the EMI. The rest of the toolset is on the EMI calculator page, and the charges themselves are broken down on the processing fee page.
Paying more than you need to on your current loan?
If your rate is well above what your profile now qualifies for, a transfer may beat prepaying. Money Bharti compares 100+ RBI-registered lenders with a soft enquiry — no impact on your CIBIL score.
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