Loan prepayment calculator: methodology

Baseline

Your current EMI is calculated from the outstanding principal, the interest rate and the remaining tenure using the standard EMI formula. Baseline interest = remaining months × EMI − outstanding principal.

Simulation

We run the loan month by month. In each month:

1. Interest = balance × monthly rate.
2. The EMI pays that interest and reduces principal by the rest.
3. Any prepayment for that month (the one-time amount in its month, plus any monthly extra) reduces the balance straight after the EMI.

Prepayments are capped at the balance still owed.

Two ways to use a prepayment

Keep EMI, reduce tenure. The EMI stays the same, so the loan closes earlier. Months saved = original remaining months − months actually needed.

Keep tenure, reduce EMI. After each prepayment the EMI is recalculated over the months left, so the loan ends on the original date with a lower EMI. With a monthly extra, the EMI falls a little every month; we show the EMI right after the first prepayment.

Interest saved = baseline interest − interest paid in that scenario.

Prepayment charges

You enter a charge as a % of the amount prepaid, with optional GST. Net saving = interest saved − charge − GST on the charge. Rules on prepayment and foreclosure charges depend on the loan type, the kind of borrower, whether the rate is floating or fixed, and the lender. We don't build any rule into the calculator; check your loan agreement and KFS.

What RBI's rules say

RBI's Pre-payment Charges on Loans Directions, 2025 apply to loans sanctioned or renewed on or after 1 January 2026. For floating-rate loans:

• Individuals, non-business loans (for example most floating-rate home loans): the lender can't charge any pre-payment charge, with or without a co-borrower.
• Business loans to individuals and micro and small enterprises: no pre-payment charge at commercial banks, NBFCs in the upper layer and some other lenders. Small finance banks, regional rural banks and NBFCs in the middle layer waive it only up to a sanctioned amount of ₹50 lakh.
• No lock-in: this applies from day one, whether you prepay in part or in full, and whatever the source of the money.
• Dual-rate loans qualify if the loan is on a floating rate when you prepay.

Fixed-rate loans (most personal and car loans) can still carry a charge. Any charge must be based on the amount you prepay, must be disclosed in the sanction letter, loan agreement and KFS, and can't be added retrospectively. No charge applies if the lender asks you to prepay.

Older loans follow the rules in force when they were sanctioned; earlier RBI instructions already barred foreclosure charges on floating-rate term loans to individuals. If your loan should be charge-free under these rules, enter 0%.

Limitations

• Assumes today's rate stays the same. Floating-rate changes affect both scenarios.
• Savings are nominal rupees. They don't account for what the same money could earn if invested, or for tax benefits on interest that some loans have.