Loan Prepayment Calculator

A loan’s interest is a charge for each month that a balance is outstanding. Pay part of the balance off early and you remove interest for every month that remains. That is why prepayment can be so effective, and why people with a bonus or a spare sum often ask whether to put it into the loan. This calculator shows the exact effect, whether you pay once or a little every month.

What happens to the loan

Each month interest equals the balance × the rate ÷ 12, the instalment is paid, and the rest of the instalment reduces the balance. A part-payment removes a lump sum from the balance at the time you choose. After that you can either keep paying the same instalment, in which case the loan ends sooner, or ask the lender to recalculate a smaller instalment over the original number of months. The page models both, and an extra amount each month for the first.

A worked example

The default loan is 30,00,000 at 8.75% with 240 months left, so the instalment is 26,511.32 and the interest over the life is 33,62,717. A part-payment of 3,00,000 now, with the instalment kept, ends the loan in 15 years 7 months, 53 months early, with 22,52,370 of interest, a saving of 11,10,347. Instead of the lump sum, an extra 5,000 a month brings the instalment to 31,511.32, ends the loan in 13 years 8 months, 76 months early, and saves 12,23,856 of interest. If you keep the end date and ask for a lower instalment after a 3,00,000 payment at month 24, the instalment becomes 23,748.65 and the saving is 2,96,737.

Shorter loan or smaller instalment

Keeping the instalment is the bigger saver because you continue to pay at the old rate and remove principal faster. Lowering the instalment gives immediate relief to your monthly budget, but you go on paying interest for the full term, so the saving is much smaller: 2.97 lakh against 11.10 lakh in the sample. If your cash flow is comfortable, shortening the loan wins; if it is tight, the lower instalment keeps you safe.

Timing

The earlier the money goes in, the more it saves. Because the first years of an amortising loan are mostly interest, a part-payment in year one removes the most. Use the month field to test paying at month 12, 24 or 60 and watch the saving fall. A small extra amount paid every month from the start can beat a larger lump sum made much later.

Edge cases

A part-payment equal to or larger than the balance is rejected, because it would simply close the loan. A part-payment of zero with an extra monthly amount models regular top-ups alone. Months left up to 600 are accepted. The final instalment is smaller when the balance is nearly cleared.

Limits

The rate is assumed fixed. On a floating-rate loan the rate may change, and some lenders adjust the instalment rather than the term, so confirm how yours behaves. Prepayment charges, taxes and the opportunity cost of using the money, which might have earned a return elsewhere, are not included.

Related tools

• Mortgage Calculator shows the full schedule before any prepayment.
• Refinance Calculator tests lowering the rate instead of reducing the balance.
• Bi-Weekly Mortgage Calculator builds the extra payment into a payment rhythm.
• Loan Calculator works out the base instalment for any amount, rate and term.