EMI Prepayment — How Much Can You Save?
Prepaying your loan — whether through lump sum payments or extra EMIs — can save you lakhs in interest. The earlier you prepay, the more you save.
Prepayment Interest Savings
Interest Saved = Total Interest (Original) - Total Interest (After Prepayment)
Where:
- P = Prepayment amount
- r = Monthly interest rate
- n = Remaining EMIs
Step-by-Step:
- 1
Calculate original total interest
EMI × n - Principal = Total interest without prepayment.
- 2
Apply prepayment to principal
Reduce outstanding principal by prepayment amount.
- 3
Recalculate EMI or tenure
Choose: same EMI (shorter tenure) or same tenure (lower EMI). Same EMI saves more interest.
Worked Examples:
Home loan prepayment
Loan: ₹50LRate: 8.5%Tenure: 20 yearsPrepay: ₹5L after 2 years
Result: Save ₹8.7L interest
₹5L prepayment in year 2 reduces tenure by ~3 years and saves approximately ₹8.7L in total interest.