Loan interest is charged every month on the outstanding balance. Any amount you repay beyond the scheduled EMI reduces that balance immediately, so every future month's interest is calculated on a smaller number. The earlier you prepay, the more months benefit.

Your EMI stays the same and the extra payments shorten the tenure — the most common outcome when you prepay. Lenders can instead keep the tenure and reduce the EMI; the interest saving is smaller in that case. The one-time lumpsum is applied in the month you choose, on top of that month's EMI.

The scheduled EMI comes from the standard reducing-balance formula: EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1], where P is the outstanding principal, r the monthly rate (annual ÷ 12 ÷ 100) and n the remaining months.

The calculator then runs the loan month by month. For each month: interest = balance × r; balance = balance − (EMI − interest) − extra payment. It repeats until the balance reaches zero and counts the months used. Interest saved is the total interest of the original schedule minus the total interest of the schedule with prepayments; months saved is the difference in schedule length. Because the schedule is simulated month by month rather than approximated, results match a lender's amortisation table for the same assumptions.

Start with ₹40 lakh at an assumed 8.5% over 20 years — an EMI of about ₹34,713 and total interest of roughly ₹43.3 lakh if you simply pay the schedule.

The same ₹2 lakh saves nearly three times as much interest in year 1 as in year 10, because it removes interest from more remaining months. A small, regular extra payment can beat a larger one-time sum made later. Figures are illustrations at the stated assumptions.

Timing first, amount second. Early prepayments save the most because the outstanding balance — and therefore each month's interest — is highest at the start. The interest rate matters too: the higher the rate, the more each prepaid rupee saves. Whether the lender shortens the tenure or reduces the EMI changes the saving substantially; this tool shows the tenure-reduction case, which saves more.

Fixed-rate loans and most personal loans carry a prepayment charge; a 2% fee on a ₹2 lakh prepayment is ₹4,000, which the saving must exceed. Prepaying with money you may need within months can force a costlier personal loan later. Check the fee in your agreement, keep an emergency buffer, then prepay. For loan-specific context see the Home Loan and Personal Loan calculators.

Prepaying gives a certain 'return' equal to your loan rate. Investing the same money could earn more or less, with risk. This tool only shows the loan side of that comparison; use the SIP calculator to illustrate the other side with your own assumptions.