Loan prepayment: reduce tenure or reduce EMI?

Loan prepayment means paying part of the loan before it is due. The money goes straight to the outstanding balance, so every later month charges less interest. After you prepay, you choose: keep the EMI and finish sooner, or keep the end date and pay a lower EMI. Keeping the EMI saves much more interest.

Worked example

Making the same ₹2 lakh prepayment a year earlier (after 12 months) would save about ₹64,639 more. Early in a loan most of each EMI is interest, so cutting the balance then removes the most interest.

Tenure or EMI: how to choose

• Keep the EMI (shorter loan): saves the most. Choose this if the current EMI is comfortable.
• Lower the EMI (same end date): eases the monthly budget, for example before a known expense or a pay cut.
• Some banks reduce tenure by default. Tell the bank in writing which one you want.

Charges and rules

For floating-rate term loans to individuals for non-business purposes, banks and NBFCs cannot charge foreclosure or prepayment penalties. The RBI’s Pre-payment Charges on Loans Directions of 2 July 2025 widen this, including to many business loans of individuals and micro and small enterprises, for loans sanctioned or renewed on or after 1 January 2026. Fixed-rate loans may still carry a charge under your agreement. Check the sanction letter.

Prepay or invest?

Prepaying gives a guaranteed “return” equal to your loan rate, after tax effects. Investing may earn more, or less. Many people keep an emergency fund first, then prepay with bonuses. The calculator does not decide this for you.

How to use the calculator

1. Enter the loan amount, rate and tenure.
2. Enter a one-time prepayment and the month you will make it, an extra monthly amount, or both.
3. Choose “finish sooner” or “lower EMI”, and drag the month slider to see how timing changes the saving.

See why early EMIs are mostly interest in how EMI works, and check what a new loan could be with home loan eligibility.