Is it better to reduce the EMI or the tenure?

The tenure, substantially, usually by a factor of three or four. Interest depends on how much you owe and for how long, and reducing the tenure is the only option that shortens both.

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Loan Prepayment Calculator

What a lump-sum prepayment actually buys you, and which of the two options (keep the EMI and shorten the tenure, or keep the tenure and cut the EMI) saves more.

Also called: part payment calculator, lump sum prepayment, foreclosure calculator.

Interest saved by shortening the tenure

₹10,69,153

Keeping the EMI and shortening the tenure saves ₹10,69,153 and clears the loan 3 years earlier. Reducing the EMI instead saves only ₹3,86,266. Interest is a function of balance and time, and shortening the tenure attacks both.

Balance before prepayment

₹44,06,359

Balance after prepayment

₹39,06,359

Tenure reduced by

3 years

Interest saved by reducing the EMI

₹3,86,266

New EMI if you reduce it instead

₹38,467

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

A lump sum X paid after k instalments reduces the balance to B_k − X. From there two things can happen. Keep the EMI and the remaining term shortens; keep the term and the EMI falls. Shortening the tenure always saves more, often by three or four times, because interest is a function of balance multiplied by time and only that option attacks both.

m = -ln(1 - i*(B_k - X)/E) / ln(1+i)

E: The equal periodic instalment (currency)
P: Principal: the amount borrowed (currency)
i: Monthly interest rate = annual rate ÷ 12 ÷ 100 (decimal)
n: Total number of monthly instalments (months)
X: The lump sum prepaid (currency)
m: Remaining instalments after prepayment (months)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

5L prepaid after 5 years on the reference loan

Original loan amount: ₹50,00,000
Interest rate (per year): 8.5%
Original tenure: 20 years
Instalments already paid: 60
Prepayment amount: ₹5,00,000

Interest saved by shortening the tenure₹10,69,153

engine schedule; the reference post quotes the remaining term falling from 180 to 144 months

Open this example

shortening the tenure beats cutting the EMI

Original loan amount: ₹50,00,000
Interest rate (per year): 8.5%
Original tenure: 20 years
Instalments already paid: 60
Prepayment amount: ₹5,00,000

Interest saved by shortening the tenure₹10,69,153

engine schedule; independently summed from both option schedules

Open this example

a zero prepayment changes nothing

Original loan amount: ₹50,00,000
Interest rate (per year): 8.5%
Original tenure: 20 years
Instalments already paid: 60
Prepayment amount: ₹0

Interest saved by shortening the tenure₹0

degenerate case: no prepayment must produce no saving

Open this example

Method and limits

What it assumes

Interest compounds monthly on the reducing balance.
The rate stays fixed for the whole term. Floating-rate loans reset periodically.
Processing fees, insurance and statutory charges are excluded.
The prepayment is applied in full to principal with no charge. Check your own agreement. Foreclosure charges on fixed-rate loans are common.

What it deliberately does not model

Ignores prepayment penalties and foreclosure charges, which vary by lender and by whether the rate is fixed or floating.
Does not weigh prepaying against investing the same money. Prepaying earns a risk-free return equal to the loan rate; it beats investing whenever the loan rate exceeds your after-tax expected return.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Is it better to reduce the EMI or the tenure?: The tenure, substantially, usually by a factor of three or four. Interest depends on how much you owe and for how long, and reducing the tenure is the only option that shortens both.