Key Takeaways
- Prepayment directly reduces the principal you owe.
- Less principal means less interest charged going forward.
- Reducing tenure typically saves more interest than reducing EMI.
- Check for prepayment charges and lock-in terms first.
What prepayment does
A prepayment is any repayment beyond your scheduled EMI. Because interest is charged on the outstanding balance, cutting that balance early reduces all the interest that would have accrued on it. The earlier in the loan you prepay, the greater the saving, since early balances are large.
Tenure vs EMI reduction
After a prepayment you can usually keep the EMI the same and finish the loan sooner (reduce tenure), or keep the tenure and lower the EMI. Reducing tenure generally saves more total interest because you stop paying interest earlier, while reducing EMI improves monthly cash flow.
Before you prepay
- Check whether prepayment charges apply to your loan type.
- Keep an emergency buffer — do not prepay with money you may need.
- Compare the interest saved against returns from alternative uses of the money.
A dedicated prepayment calculator is on our roadmap; the EMI calculator already shows the amortisation schedule so you can see how much interest each period carries.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
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How Is EMI Calculated?
An EMI is calculated with a standard formula from the loan amount, the monthly interest rate, and the number of months. Each EMI pays some interest and some principal.
loansHow Loan Interest Works
Most loans charge interest on the reducing outstanding balance, so interest falls as you repay. A flat rate charges on the original amount throughout and is effectively costlier.