A lump sum against the principal shortens the loan and cuts the total interest. How much depends enormously on when you do it.
₹7,81,075
interest saved
- Your EMI
- ₹41,325
- Months saved
- 31
Paying a lump sum reduces the tenure rather than the EMI, unless you ask the lender to reduce the instalment instead.
Talk to an advisorIndicative only. Final eligibility, interest rate, charges and sanction are decided by the lender after full assessment of your profile and documents. Transakt does not lend and does not approve loans.
Timing matters more than amount
Because interest is charged on the outstanding balance, a prepayment early in the loan removes interest that would otherwise have accrued for years. The same amount paid in the final two years removes almost nothing.
On a twenty-year home loan, a ₹5 lakh prepayment in year three typically saves several times what the same ₹5 lakh saves in year fifteen. If you are going to prepay, do it as early as you can.
Reduce the tenure or reduce the EMI?
Most lenders will let you choose. Reducing the tenure keeps your EMI the same and finishes the loan sooner — it saves far more interest. Reducing the EMI keeps the loan running for its original term and improves your monthly cash flow.
Reducing the tenure is usually the better financial choice. Reducing the EMI is the better choice if monthly cash flow is what is under pressure. Ask explicitly, because lenders often default to whichever suits them.
Check the charges first
Floating-rate home loans and property loans to individuals generally carry no prepayment penalty. Business loans, personal loans and fixed-rate loans frequently do — commonly 2% to 5% of the amount prepaid, sometimes with a lock-in of six or twelve months first. Confirm before you transfer the money.
Is it better to prepay or to invest?
Broadly, prepaying wins when the loan rate exceeds what you would reliably earn after tax. On an 18% business loan that is nearly always true. On an 8.5% home loan it is a genuine judgement call and depends on your circumstances. We are not investment advisers.
Can I prepay a business loan?
Usually yes, but most business loans carry a foreclosure charge and many have a lock-in period at the start. The charge is often negotiable at the point of sanction — worth raising then rather than later.
How do I make sure it goes against the principal?
Say so explicitly in writing when you make the payment, and check the next statement. Payments have been known to sit as an advance EMI instead, which achieves far less.