Loan Prepayment: Taking a loan gives relief when you need funds, but paying EMIs every month can sometimes feel like a burden. The biggest worry is the total interest that adds up over the years. That’s why many people look for a way out through loan prepayment closing the loan early to save money. But the question is, how much can you really save if you prepay a ₹10 lakh loan? Let’s break it down.
What is Loan Prepayment?
Prepayment simply means paying your loan amount (partly or fully) before the scheduled tenure ends. When you do this, the outstanding principal reduces, which directly cuts down the interest you would have paid in the future. Most banks allow prepayment after a minimum lock-in period, and some may charge a small penalty. Still, the savings usually outweigh the charges.
Read more: What is a Top-Up Loan? How to Get Extra Funds After Taking a Home Loan
Normal EMI Without Prepayment
Suppose you take a ₹10,00,000 loan at 11% interest for 5 years. Your monthly EMI will be around ₹21,739. Over 5 years, you will pay a total of ₹13,04,340, which includes ₹3,04,340 as interest alone.
| Loan Amount | Interest Rate | Tenure | EMI (Approx) | Total Payment | Total Interest |
|---|---|---|---|---|---|
| ₹10,00,000 | 11% | 5 Years | ₹21,739 | ₹13,04,340 | ₹3,04,340 |
What If You Prepay After 2 Years?
Now, let’s say after 24 EMIs (2 years), you decide to close the loan fully. By then, you would have already paid ₹5,21,736 (24 EMIs). The outstanding principal will be around ₹6,56,000. If you prepay this amount, your loan ends immediately. Total outgo in this case = Amount already paid (₹5,21,736) + Prepayment (₹6,56,000) = ₹11,77,736. That means you save almost ₹1,26,604 compared to paying till the end.
| Scenario | Total Paid | Interest Paid | Savings Compared to Full Tenure |
|---|---|---|---|
| Full 5 Years | ₹13,04,340 | ₹3,04,340 | – |
| Prepay After 2 Years | ₹11,77,736 | ₹1,77,736 | ₹1,26,604 |
Why Prepayment Feels Like a Relief
The biggest advantage of prepayment is peace of mind. Imagine cutting short your loan by 3 years and saving over a lakh rupees. The financial stress reduces, and you free up your monthly income for other goals. Yes, you need to arrange a lump sum for prepayment, but in return, the burden of EMIs disappears sooner.
Conclusion
Prepaying a ₹10 lakh loan can save you a big chunk of money in the long run. In our example, by closing the loan after just 2 years, you save more than ₹1.26 lakh in interest. The earlier you prepay, the bigger your savings. If you have spare funds and your bank allows it, loan prepayment is one of the smartest financial decisions you can make.
Disclaimer
This article is only for educational and general knowledge purposes. Loan terms, prepayment rules, and penalties differ from bank to bank. Please check with your lender for the exact process and charges before making any financial decision.
