Question 1

What is loan prepayment?

Accepted Answer

Loan prepayment means paying an extra amount toward your loan principal, beyond your regular EMI. This reduces the outstanding balance faster, cutting the interest charged over the life of the loan.

Question 2

Should I reduce my EMI or reduce my tenure after prepaying?

Accepted Answer

Reducing tenure while keeping the EMI the same saves more total interest, since the loan closes faster. Reducing the EMI instead lowers your monthly cash outflow but saves less interest overall. The right choice depends on whether you need monthly cash flow relief or maximum interest savings.

Question 3

Is there a penalty for prepaying a loan?

Accepted Answer

Floating-rate loans in India generally cannot carry prepayment penalties for individual borrowers, per RBI guidelines. Fixed-rate loans may still carry a penalty, typically 2-4% of the prepaid amount. Always check your loan agreement.

Question 4

How much interest can I save by prepaying my loan?

Accepted Answer

Interest savings depend on how early you prepay, how much you prepay, and your interest rate. Prepaying early in the loan term saves more, since more of each EMI still goes toward interest in the early years.

Prepayment Calculator