Analyze Prepayment Impact
Prepayment Analysis
Why Prepayment Matters
Making even small additional payments toward your loan principal can save you lakhs in interest and years of repayment. This is because loan interest is calculated on the outstanding principal - every rupee of prepayment reduces the base on which interest accrues.
Prepayment Rules in India
- Floating Rate Home Loans: Zero prepayment penalty (RBI mandate)
- Fixed Rate Home Loans: Banks may charge 2-3% prepayment penalty
- Personal Loans: Typically 2-5% prepayment charges. Some banks allow after 12 EMIs.
- Car Loans: Usually 2-5% on outstanding amount. Some banks allow after 6 months.
Prepayment Strategy
The best time to prepay is early in the loan tenure when most of your EMI goes toward interest. Use annual bonuses, tax refunds, or surplus savings for prepayment. Even Rs. 50,000/year extra can make a huge difference.