How to use this calculator
- Outstanding principal: the balance just before the prepayment, from your loan statement or the lender's app.
- Interest rate: the rate you pay today, after the latest reset.
- Remaining tenure: EMIs left, which may be more than at sanction if a rate rise has already stretched the loan.
- Prepayment and month: the lump sum and when you will pay it; 1 means right after your next EMI.
Why reducing tenure saves more
In both options your outstanding principal drops by the amount you prepay. The difference is what happens next:
- Reduce tenure keeps your EMI unchanged. Because the balance is smaller, more of each EMI goes to principal, the balance falls faster, and the loan closes early. You stop paying interest sooner.
- Reduce EMI recalculates a smaller EMI over the same remaining months. You pay less each month but keep paying interest for the full term.
We simulate both paths month by month from the date of your prepayment and compare total interest with no prepayment at all.
Worked example
₹40 lakh outstanding at 8.75% with 20 years left, and a ₹5 lakh prepayment after the next EMI:
| Current EMI | ₹35,348 |
| Reduce tenure: interest saved | ₹17,42,554 |
| Reduce tenure: loan shorter by | 5 yrs 3 mos |
| Reduce EMI: interest saved | ₹5,57,827 |
| Reduce EMI: new EMI | ₹30,923 |
| Extra saving with reduce tenure | ₹11,84,727 |
Reducing tenure saves about ₹11,84,727 more. In exchange, reducing EMI frees up ₹4,425 a month.
Choose reduce EMI when the monthly saving solves a real problem: a new school fee, a single-income phase, or an EMI that has crept above about half your take-home pay. Otherwise reduce tenure.
What your bank does by default after a rate rise
When a repo-linked or MCLR-linked rate goes up, most lenders keep your EMI the same and quietly add months at the end. You may only notice when you read the statement. Here is the same ₹40 lakh loan if the rate resets from 8.75% to 9.5% with 20 years left:
| Keep EMI: tenure becomes | 23 yrs 11 mos |
| Keep EMI: months added | 3 yrs 11 mos |
| Keep tenure: new EMI | ₹37,285 |
| Keep tenure: EMI rises by | ₹1,937 |
| Extra interest if you let tenure grow (about) | ₹11,95,077 |
A rise of under one percentage point adds years to the loan. Paying the higher EMI costs a little each month but avoids most of that extra interest. If you can afford it, the higher EMI is usually the better answer to a rate rise, just as reduce tenure is usually the better answer to a prepayment.
RBI's 2023 rules on resetting floating rates require lenders to tell you about the impact of a change, offer a choice between a higher EMI, a longer tenure or both, allow prepayment, and offer a switch to a fixed rate where their policy permits. Lenders must also send a quarterly statement showing the principal and interest paid, the EMI and the number of EMIs left. Read it after every reset. For more on how rate moves reach you, see how a repo rate change affects your EMI.
How to ask your bank for the option you want
Defaults vary by lender and even by branch, so state your choice every time:
- At prepayment: in the request or on the net-banking screen, write "apply to principal and reduce tenure, keep EMI unchanged" (or the reverse). Many online prepayment screens have a dropdown; do not skip it.
- After a rate rise: send a written request or email to the loan servicing team asking to raise the EMI so the original end date is kept. Quote your loan account number and the reset date.
- Paperwork: a higher EMI may need a fresh NACH mandate if the old one has a maximum amount below the new EMI. Ask before the next debit date, or the EMI can bounce.
- Confirm: ask for a revised repayment schedule and check the EMI count and end date against this calculator.
Assumptions
- The interest rate stays the same for the rest of the loan.
- Prepayment is applied right after the EMI in the month you choose; no prepayment charges.
- EMIs are rounded to the nearest rupee; the last EMI is adjusted.
- The rate-reset example assumes the new rate applies from the next EMI and stays there.
- To include charges or yearly prepayments, use the part-payment calculator. For a longer discussion, read reduce EMI or tenure after prepayment.
Frequently asked questions
Which is better after prepayment: reducing EMI or tenure?
Reducing tenure saves more interest because you keep paying the same EMI on a smaller balance, so more of each EMI goes to principal and the loan closes sooner. Reducing EMI is better only if you need the lower monthly payment for cash flow.
Can I choose between reducing EMI and tenure?
Most lenders let you choose when you make a prepayment, but some apply one option by default (often reducing tenure). Tell your lender which you want in writing at the time of prepayment.
What happens to tenure when the floating rate goes up?
When rates rise, many lenders keep the EMI the same and extend the tenure, sometimes by years. A prepayment with the reduce-tenure option can win back that extra time.
Can I reduce EMI now and pay it off faster later?
Yes. If you reduce the EMI but voluntarily keep paying the old EMI amount as monthly prepayments, you get most of the benefit of reducing tenure while keeping flexibility. Check that your lender allows frequent prepayments without charges.
Is there a limit on how far my bank can extend the tenure?
Yes, in practice. Lenders cap the tenure so the loan ends by a set age, often around 60 to 70 depending on the lender and your job. RBI also says an extension must not leave the EMI below the monthly interest. If a reset hits that cap, the EMI has to rise instead.
Does changing the EMI or tenure cost anything?
On a floating-rate loan to an individual for non-business use, there is no prepayment charge. Some lenders charge a small fee to reschedule or switch from floating to fixed, plus 18% GST. Any such fee must be disclosed upfront, so ask for it in writing.