Loan Prepayment Calculator
Loan prepayment calculator helps you calculate the savings you can make when you opt for prepayment of your home loan, personal loan or any other loan amount in part or full, before the tenure ends. The tool is free to use and provides instant results.
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Calculator Disclaimer
The repayment amount shown using this calculator is an estimate, based on information you have provided. It is provided for illustrative purposes only and actual repayment amounts may vary. To find out actual repayment amounts, contact us. This calculation does not constitute a quote, loan approval, agreement or advice by My Finance. It does not take into account your personal or financial circumstances.
Loan Prepayment
A home loan, a personal loan, or any other loan is a burden for the borrower. The borrower is required to repay the loan amount plus interest over a predetermined repayment period. The amount that the borrower repays each month is known as the EMI, or Equated Monthly Instalment. Repaying the EMI on time will result in the loan amount being liquidated at the conclusion of the period. However, debtors can make prepayments or advance payments. The major goal of these prepayments is to save on the interest component. Let’s look at the concept of prepayment in depth and see how much interest you can save using the Foreclosure Calculator.
The Concept of EMI
Before we go into the details of the Foreclosure Calculator and how to utilise it, it’s important to understand the notion of the EMI.
EMI stands for Equated Monthly Installment. It represents the amount that a borrower must repay each month for a certain loan term. EMI depends on the following three factors:
- The principal amount of the loan
- The applicable rate of interest on the loan
- The repayment tenure of the loan
The calculation of the EMI is a difficult operation. However, the EMI Calculator is available on the internet. These calculators are also available on the official websites of each bank and financial organisation. One such Loan Closure Calculator is also available on our website.
Using the EMI Calculator is easy. The user has to enter the following three pieces of information:
- The loan amount
- The rate of interest
- The loan tenure
On entering this data, you get your EMI in an instant.
This EMI is made up of two components: principle repayment and interest payback. Both of these numbers are variable. Typically, the interest portion is bigger in the early phases. It decreases progressively as the debt is repaid. The principal amount is voided during the course of the term.
The Concept of Prepayment
The borrower has a fixed obligation to repay the EMI every month for the whole term. At times, the borrower may receive a lump sum payment that can be used to make a prepayment on the loan. This prepayment is simply an advance payment of the loan. The goal of the prepayment is to lower the interest burden on the loan. Banks typically approve such prepayments by the borrower. As this sum is used to liquidate the principle component of the loan, the borrower benefits from a significant reduction in the loan’s interest portion.
Different Types of Prepayment
According to the principle stated above, any sum paid by the borrower in excess of the normal EMI is considered a prepayment. This prepayment can be partial or total. The last alternative is also referred to as loan foreclosure.
Partial prepayments can be of two types: regular prepayment and lump sum prepayment. Regular or periodic prepayment occurs when the borrower pays surplus sums above the prescribed EMI at regular periods. This interval can be monthly, quarterly, semi-annual, or yearly. Any other sort of prepayment is a lump sum payment.
The Benefits of Prepayment of the Loan
Prepaying a loan has its advantages. The borrower gains the following benefits when they make prepayments:
- Any prepayment helps to reduce the principal component of the loan. It is because the normal EMI covers the interest component each month. Thus, the prepayment reduces the borrower’s principal liability.
- As the principal outstanding falls, so does the future interest component. As a result, the borrower repays the full debt ahead of time. You can use the loan Prepayment Calculator to calculate the extent of the advantage.
- Prepayment of a loan indicates your financial soundness. You prepay because you have the liquidity.
- Prepaying a house loan can help you save taxes. The Government of India provides income tax breaks on house loan interest and repayment up to a certain limit. Making prepayments allows the borrower to take full advantage of these constraints and thereby save tax.
- Prepaying your debt reduces your overall liability. It improves your credit rating. Making frequent prepayments helps the borrower enhance his or her credit score.
The Role of the Loan Prepayment Calculator
We have shown that manually calculating the regular EMI is a complex operation. Hence, we use the EMI Calculator to do so. Similarly, estimating the impact of a monthly prepayment in a loan account is a complex calculation. However, loan prepayment calculators make this process easier for us.
The loan Prepayment Calculator benefits borrowers in a variety of ways:
- Calculate the entire amount must be paid to foreclose a debt (full prepayment).
- Calculate the amount of interest saved by shortening the term due to regular prepayment (partial prepayment).
- Calculate the amount of interest saved by making a lump sum payment.
How Does the Loan Prepayment Calculator Work?
Similar to the EMI Calculator, the loan Prepayment Calculator requires specific data. We shall compute the working of a loan Prepayment Calculator using a few concrete examples.
- Complete prepayment or foreclosure of a home loan
- Partial prepayment in a lump sum and monthly instalments
We shall choose the home loan for our example because of the following reasons:
- The repayment tenure of a home loan is an extended one. It will be easy to understand the benefits of loan prepayment.
- Usually, people prefer to prepay home loans as compared to other loans. However, the principle and the mode of calculation is the same for all loans.
Scenario 1 – Full prepayment (Foreclosure)
- Home Loan amount – Rs. 20 Lakhs
- Repayment tenure – 180 months or 15 years
- The rate of interest – 8.40%
- Number of instalments already paid until date – 36
Enter the above data on the loan Prepayment Calculator to calculate the foreclosure amount.
- The amount necessary to prepay the entire loan – Rs. 17,72,534
This amount is also known as the foreclosure amount. It is also equal to the balance outstanding in the loan account at the end of three years. As you repay the entire amount, you save on the whole of future interest payable on the home loan.
Scenario 2 – Partial prepayment in a lump sum (one-time)
- Home Loan amount – 20 Lakhs
- Repayment tenure – 15 years
- Rate of interest – 8.40%
- Number of instalments serviced until date – 36
- Lumpsum amount paid at the end of three years – Rs. 5 Lakhs
Using the loan Prepayment Calculator, you can find out the amount of interest saved by the borrower. The loan tenure gets reduced substantially.
Under these circumstances, the borrower ends up saving an overall sum of Rs. 6,05,872. The loan tenure reduces by 56 months.
Scenario 3 – Partial prepayment every month (fixed amount)
- Home Loan amount – Rs. 20 Lakhs
- Repayment tenure – 15 years
- Rate of interest – 8.30%
- Number of instalments paid till date – 36
- Regular prepayment of Rs. 5,000 per month for the remainder of the term
The loan Prepayment Calculator helps in calculating the benefit under such a scenario as well. On submitting this elementary information, the customer can derive the overall benefit. The loan Prepayment Calculator provides a detailed amortisation chart to make it easy for the customer to understand.
The benefit to the borrower is Rs. 3,37,392 with the overall repayment tenure getting reduced by 43 months.
We have seen three different scenarios where the loan Prepayment Calculator helps us to determine the benefits that accrue to the borrower.
Benefits of Using the Loan Prepayment Calculator
Many banks and financial institutions have official websites where you can access the loan Prepayment Calculator. LoansWala includes one such calculator that can help consumers determine their payment amount at a glance.
- Enter the minimum numbers to determine the prepayment amount.
- This calculator helps the borrower to calculate the cost of a home loan foreclosure.
- The Loan Foreclosure Calculator also helps consumers determine interest benefits and understand the changing payback time.
- The loan amortisation chart provides detailed information about the benefits available to the consumer.
From Our Blog
FAQs for Loan Prepayment Calculator
Loan foreclosure is the entire payoff of your remaining loan balance in one payment rather than paying multiple EMIs. You can use a loan prepayment calculator to determine the foreclosure amount.
Foreclosing on a large loan is a smart idea. The most significant advantage of loan foreclosure is the savings on interest and the elimination of debt repayment obligations. Just be sure that the lender does not impose a significant foreclosure penalty.
You can prepay your SBI house loan based on your financial needs. It can be accomplished in two ways: by repaying a lump sum of the remaining loan amount or by repaying the lump sum amounts at regular intervals every couple of months.
Using a house loan part-prepayment calculator is simple. The tool calculates prepayments based on the total loan amount, pending balance loan to be repaid, payback period, interest rate at which the loan was taken, total number of EMIs, and foreclosure month. You only had to enter these facts into the tool to find out the results.
Calculating the personal loan foreclosure amount using a prepayment or foreclosure calculator is simple. It aids in estimating the outstanding balance of a personal loan or other loan amount, as well as the interest payment, by computing pending instalments.
As the term implies, full prepayment leads to debt foreclosure. You get rid of all liability. When you make a part prepayment, you reduce your existing commitment by the amount of the prepayment. The interest savings are an added bonus.
It depends on the sort of loans in your portfolio. Prepaying a house loan is advantageous since you save significant interest over the life of the loan. It is also important to prepay personal loans because they are costly. With market assets currently yielding low returns, it makes sense to payback loans and eliminate liabilities.
Yes, the loan Prepayment Calculator has a field where you can enter information on the penalty rate of interest. If no penalty is specified, the system permits you to leave the column blank. It is the most precise tool for calculating loan prepayment amounts and associated advantages.
Nationalised banks often do not impose limitations on house loan prepayments. Private banks and housing finance organisations have their own internal policies. There may be restrictions on the quantity and frequency of prepayments. Personal loans and other loans may include lock-in periods during which the borrower is unable to make any prepayments.
Prepayment of any loan is best done early on. The home loan has a longer term. As a result, it is one of the most advantageous loans for prepayment. In the case of other loans, use the loan Prepayment Calculator to determine the benefits of early repayment. If it is beneficial, you may proceed with the prepayment.
As previously stated, the EMI consists of both interest and principle repayment parts. As a result, any payments in excess of the usual EMI will be deducted from the principle amount. The EMI is directly proportionate to the outstanding principle amount and the interest rate. It’s also inversely related to tenure. Thus, if you do not reduce the EMI, the requirement will be reduced automatically.
It depends on the circumstances. If you have a good level of financial stability, you can keep the EMI constant and shorten the tenure. You could wind up closing the loan faster. However, in certain instances, you may have to minimise the EMI.
Circumstances can happen in which you may have a lower income following an event such as retirement. Under such situations, it is preferable to spend a portion of your retirement benefits and make a significant prepayment. You can then request that the bank cut your EMI while keeping the residual tenure constant. It will make it easier for you to manage your EMI payments.
Making a lump sum prepayment is usually helpful because it allows you to save a considerable amount of interest. However, if you have enough means to make regular monthly prepayments, it is a great habit. You may be able to save a significant amount of money by reducing the residual tenure.
The manual calculation could be tiresome. Customers can utilise MS Excel tables to calculate the sums. However, the ideal solution is to use a pre-made loan payback calculator. With the least amount of work, you achieve the best and most precise outcomes.
If you want to return your loan before it expires, the lender may charge a prepayment penalty, often known as foreclosure charges. This penalty is levied to compensate for the lost interest earnings resulting from the loan’s early conclusion. However, for some loans (such as most home loans), the lender may allow prepayment without charging any fees.
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