Loan Prepayment Calculator

A loan foreclosure calculator estimates the lump sum required to close a loan early and the total interest saved. It factors in:

• Outstanding Principal
• Remaining Yenure
• Interest Rate
• Prepayment Penalties

Example: For a ₹20 lakh home loan at 8% interest with 10 years remaining, the calculator shows how much you’d save by paying off the loan 5 years early, minus any penalties.

To use a loan foreclosure calculator, follow the steps given below:

• Enter your loan details, including the outstanding loan amount you wish to pay, the current applicable interest rate, and the remaining tenure (in years or months) left on your loan.
• Then, provide the prepayment details like the lump sum prepayment amount you intend to make, and the frequency of prepayment (one-time, monthly, quarterly).
• Finally, analyse the results to see your revised loan tenure and potential interest savings.

The EMI prepayment calculator may also display how your EMI will change after the prepayment.

The following are some of the main benefits of using an early loan repayment calculator:

• Potential savings: The prepayment tool providеs a clеar undеrstanding of how much potеntial intеrеst savings you can achiеvе by making prеpaymеnts on your loan. It provides an easy-to-use Excel sheet with a prepayment option.  
• Timе and effort saving: Instead of calculating potential savings manually, this tool provides you with instant results, saving your time and еffort. 
• Financial planning: The loan closure calculator hеlps in crеating a stratеgic plan for prеpaying a loan. 
• Comparison: When considering multiple prеpaymеnt scеnarios, an Excel calculator sheet with a prepayment option enables you to comparе thе various outcomes and make a wеll-informеd choice.
• Improved credit score: Since the outstanding principal amount gets reduced, your debt amount also gets reduced, and hence, your credit score could increase.

There are mainly two types of loan prepayments:

• Partial/ part prepayment: Under this option, the loan account continues to operate and is not closed. The EMI and/ or tenure might be adjusted after prepayment of a portion of the outstanding loan amount. This is an ideal option for those who get yearly bonuses or incentives. You can use the part payment calculator for making a partial loan prepayment.
• Foreclosure/ pre-closure/ full prepayment: It is making an outstanding principal loan amount prepayment in full with a single instalment before the end of the tenure. In this option, after payment of the full outstanding amount, the loan account will be closed.

Prepayment can be made for different types of debts and obligations.

• Corporations might prepay revolving lines of credit, short-term or long-term business loans, other debts, or even rent.
• Consumers can prepay a personal loan/ home loan/ loan against property/ other loans through refinancing or making an entire/ partial prepayment from their own pocket.
• Consumers can also prepay their credit card charges before receiving a statement.
• Some loans, like fixed interest rate mortgage loans, car loans, or personal loans, may include prepayment penalties. These penalties are disclosed before signing the loan agreement.
• You can use a personal loan prepayment calculator to calculate the savings by making a personal loan prepayment. Similarly, a car loan prepayment calculator can be used to calculate the savings made with a car loan prepayment
• Some loans, like floating interest rate home loans, may come with zero prepayment charges. You can use the home loan prepayment calculator to calculate the savings by making a home loan prepayment.
• It is advised to discuss prepayment charges and conditions before you apply for the loan.

Various factors determine the amount needed to foreclose a loan. Below are the details of these factors:

• Outstanding loan amount: A larger principal amount remaining on the loan means a higher foreclosure amount. 
• Type of loan: Different types of loans (such as home loans, personal loans, business loans, car loans) may have different foreclosure terms as well as charges.
• Rate of interest: Higher interest rates usually result in higher interest payments. This can impact the total foreclosure amount. 
• Repayment tenure: The remaining tenure of the loan also plays a significant role. Longer tenure loans may result in larger interest components, affecting the foreclosure amount. 
• Prepayment charges: Many lenders levy a fee on foreclosure or partial prepayment of a loan, which can either be a percentage of the outstanding balance or a fixed amount. This can add to the foreclosure amount.
• Lender’s policies: Every lender has their own policies regarding loan foreclosure charges, so it is important to review your loan agreement and understand all the terms. 
• Overdue EMIs: Any unpaid/ overdue EMIs at the time of pre-closure is factored into the final amount. 
• Type of interest rate: Floating interest rate loans may come with lesser foreclosure charges compared to fixed interest rate loans.
• Prepayment option: Some loans may allow partial prepayments, which can decrease the outstanding principal and lower future interest payments.

Banks, Non-Banking Financial Companies (NBFCs), or other financial institutions/ online lenders can charge prepayment penalties on some loans, such as personal loans, fixed-interest rate, and semi-fixed-rate loans. The prepayment penalty can vary between 1% to 5% of the outstanding loan amount.

Here are some important things to consider before foreclosure of your loan:

• Make sure you have an emergency fund set aside to cover unexpected expenses.
• Be aware that paying your loan early might affect your tax deductions.
• Check if there is any lock-in period attached to the loan before making a prepayment. For instance, some loans cannot be pre-closed before making 12 EMI payments or 1 1-year tenure.
• Do not forget to assess your current as well ass future financial needs.