Paying a loan off early
A lump sum or a little extra each month: how many months sooner the loan ends, how much interest is never paid, and whether to shorten the term or the instalment.
Most lenders charge a prepayment fee and many lower the instalment by default, which saves far less. Both change this answer; neither is modelled.
As it stands, ā¤°āĨ 20,00,000 at 10.50% over 240 months costs ā¤°āĨ 27,92,222.11 in interest.
With the prepayment and the same instalment, the loan ends after 184 months instead of 240, and ā¤°āĨ 9,32,129.79 of interest is never charged.
Early money matters most: a rupee paid now stops earning the bank interest for every month that remains.
| Year | Balance without | Balance with |
|---|---|---|
| 1 | 19,68,921.35 | 17,68,921.35 |
| 2 | 19,34,417.75 | 17,12,377.04 |
| 3 | 18,96,111.74 | 16,49,601.36 |
| 4 | 18,53,584.26 | 15,79,907.58 |
| 5 | 18,06,370.10 | 15,02,533.30 |
| 6 | 17,53,952.78 | 14,16,632.13 |
| 7 | 16,95,758.89 | 13,21,264.35 |
| 8 | 16,31,151.84 | 12,15,386.72 |
| 9 | 15,59,424.86 | 10,97,840.99 |
| 10 | 14,79,793.32 | 9,67,341.32 |
| 11 | 13,91,386.13 | 8,22,460.12 |
| 12 | 12,93,236.16 | 6,61,612.54 |
| 13 | 11,84,269.73 | 4,83,039 |
| 14 | 10,63,294.80 | 2,84,786.02 |
| 15 | 9,28,988.03 | 64,684.89 |
| 16 | 7,79,880.18 | 0 |
| 17 | 6,14,340.13 | 0 |
| 18 | 4,30,557 | 0 |
| 19 | 2,26,520.33 | 0 |
| 20 | 0 | 0 |
- Ask the lender two things before paying: the prepayment charge, and whether they will shorten the term rather than the instalment. Get the second in writing.
- Compare with the emergency fund first â a lump sum that leaves nothing for a bad month is not a saving.
- No prepayment penalty or fee â many lenders charge one; ask, and subtract it from the saving.
- The lump sum is paid after month 12's instalment; extra monthly amounts start from the first month.
- A fixed rate, reducing balance, the same conventions as the EMI calculator.
- The instalment stays the same; the loan simply ends when the balance reaches zero.
A worked example
The form starts with these figures (in NPR) so you can see how it works before typing your own. They are made up â nobody's real numbers appear here.
Questions people ask
Shorten the term or lower the instalment?
Shortening the term saves far more interest, because every remaining month is charged on a smaller balance. Lowering the instalment eases the month but keeps you paying for the full term. Banks usually do the second unless you ask for the first â in writing.
Is there a charge for paying early?
Often, and it is not modelled here. Ask the lender and subtract it from the saving shown; if the charge is more than the saving, do not prepay.
Lump sum now, or a little extra every month?
Whichever you will actually do. A lump sum now saves the most per rupee; an extra every month adds up and is easier to keep. Put both in and compare.
Should I prepay or keep the money?
Keep an emergency fund first. After that, prepaying beats any savings account paying less than the loan's rate â which is nearly all of them.
Do you keep what I type here?
No. The figures are used to work out the answer and are not stored, and never appear in the page address.
These are estimates. The figures depend entirely on the numbers you enter and on assumptions that are listed on every result. They are not financial advice, and a bank, employer or authority may use different rules. Check anything important with them before you decide.
We do not keep your figures. Salary, debt and savings you type here are used to work out the answer and are not stored, and never appear in the page address. The only thing remembered is your country and language choice (a small cookie), so the currency can be suggested next time â never a figure you typed. Anonymous counters record that a calculation happened, not what it was.