Pre-payment means paying extra money towards your loan principal over and above your regular EMI. Many people don't realize how powerful pre-payment can be - even small extra payments can save you lakhs of rupees in interest and reduce your loan tenure significantly. Whether you have a home loan, car loan, or personal loan, pre-payment is one of the best financial strategies to become debt-free faster.
For FY 2025-26, most banks allow pre-payment but some charge pre-payment penalty (usually for fixed rate loans or if pre-payment is very large). Floating rate home loans usually allow free pre-payment. The benefit is huge: On a ₹30 lakh home loan at 9% for 20 years, paying an extra ₹5,000 per month can save you nearly ₹10 lakh in total interest and reduce tenure by 6-7 years. Our pre-payment calculator helps you see exactly how much you'll save and how much faster you can close your loan.
The key insight is that pre-payment directly reduces your principal, which means all future EMIs will have less interest component. So not only do you pay off the loan faster, but you also save on interest. Use our EMI calculator first to see your current loan structure, then use pre-payment calculator to see the impact. Many people use bonuses, tax refunds, or extra savings for pre-payment rather than spending or investing elsewhere.
Pre-payment strategy varies by loan type. For home loans, pre-payment is very beneficial because the interest rates are high and tenure is long. For personal loans (which have even higher rates), pre-payment should be prioritized even more. Before making large pre-payments, check if you have emergency fund in place, as emergency funds (saved in FDs or savings account) provide security that's sometimes worth more than interest savings.
Pre-pay when you have surplus funds and the loan interest rate is higher than your investment returns. Consider tax benefits and opportunity cost before making a decision.
Reducing tenure saves more interest, while reducing EMI improves cash flow. Choose based on your financial goals and current situation.
Most banks charge 0-5% pre-payment charges depending on loan type and timing. Floating rate home loans often have no charges after 1 year.
For home loans, pre-payment reduces the principal, which may reduce Section 24(b) interest deduction. Calculate net savings considering tax impact.
Compare loan interest rate with expected investment returns. If investment returns are higher, invest; otherwise, pre-pay the loan.