Loan Payoff Calculator

Why extra payments do so much

Every rupee you pay above your scheduled instalment goes entirely to principal. It skips the interest queue. And because interest is charged on the outstanding balance, reducing that balance early removes interest from every single month that follows.

This is why a modest extra payment has an effect out of proportion to its size. Adding 10% to your monthly payment does not shorten the loan by 10% — it typically shortens it by a great deal more, because the saving compounds against you in reverse.

A worked example

Take a 5,00,000 loan at 10% with five years remaining. The standard EMI is about 10,624, and you would pay roughly 1,37,400 in interest over the full term.

Now add 2,000 a month. The loan clears in approximately 4 years and 2 months instead of 5 — ten months early — and total interest falls to about 1,12,900. You have saved roughly 24,500 by paying an extra 2,000 for 50 months, which is 1,00,000 of extra payments that eliminated 24,500 of cost and ended the obligation early.

Push the extra to 5,000 a month and the loan closes in about 3 years and 2 months, with interest down to roughly 85,700.

Reduce the tenure or reduce the EMI?

When you prepay a lump sum, most lenders offer a choice: keep the EMI and shorten the term, or keep the term and lower the EMI. Shortening the term saves substantially more interest. Lowering the EMI improves monthly cash flow. If your goal is to be debt-free at the lowest total cost, always choose to shorten the term.

Should you prepay at all?

Prepaying is not automatically the right move. Work through this order:

1. Emergency fund first. Three to six months of expenses in accessible savings. Money paid into a loan is gone; you cannot withdraw it when the car breaks down.
2. Highest-rate debt first. Clearing a 36% credit card before an 8.5% home loan is not close.
3. Compare against investment returns. Prepaying a loan is a guaranteed return equal to its interest rate. If your loan costs 9% and you can reasonably expect 11% from investing, the maths favours investing — but the loan's return is certain and the investment's is not, and there is a real psychological value in being free of the debt.
4. Check the tax angle. If you claim deductions on home loan interest, prepaying reduces the benefit, which narrows the effective gap.

Practical notes

Confirm with your lender that extra payments are applied to principal rather than held as an advance instalment — the distinction matters and the default is not always what you would want. Check for foreclosure charges on fixed-rate loans. And ask for an updated amortisation schedule after any lump-sum prepayment so you can see the revised end date in writing.