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Prepay vs Invest

Prepay vs Invest · decision engine

Got a monthly surplus? See whether killing the loan or investing builds more wealth.

₹
%
Years Months Days
₹
%
—
Prepay first, then invest
₹0
Invest from day one
₹0
Loan cleared in (prepay path)—
Interest saved by prepaying—
Effective post-tax loan cost*—
Both paths, side by side

Both paths are compared over the same horizon (your current tenure). Prepay first: the surplus reduces the loan; once it's clear, the freed-up EMI plus the surplus are invested for the years that remain. Invest from day one: the loan runs its full course while the surplus is invested throughout. The math is only half the story — prepaying is a guaranteed, risk-free saving and debt-free peace of mind; investing carries market risk but stays liquid. Indicative only, not financial advice.

Tax notes: the LTCG toggle applies a flat 12.5% to equity gains — slightly conservative, since the first ₹1.25L of long-term gains each financial year is actually exempt (and gains on units held under 12 months would be 20% STCG instead). Always compare the loan's post-tax cost against the investment's post-tax return: prepaying "earns" the loan rate tax-free. *Effective post-tax loan cost assumes you claim the §24(b) interest deduction at the 30% slab — that only exists in the old regime for a self-occupied house (capped at ₹2L/yr of interest); in the new regime the loan's effective cost is the full sticker rate, which tilts the decision further toward prepaying.

What to work out next

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Frequently asked questions

What is EMI and how is it calculated?

EMI (Equated Monthly Installment) is the fixed monthly payment that repays a loan over its tenure, made up of principal and interest combined. It's calculated from the loan amount, interest rate, and tenure using a standard amortization formula -- the same one this calculator uses, so you can see the exact monthly figure and how much of each payment goes to interest versus principal.Read more: The Credit Card Minimum Due Is Designed to Keep You Paying Forever

Does prepaying a loan actually save money?

Yes, almost always -- a prepayment reduces the outstanding principal, which reduces the interest charged on every remaining installment. The earlier in the loan you prepay, the more you save, since interest is front-loaded in most amortization schedules. Check for prepayment penalties with your lender first.Read more: The Insurance Hiding Inside Your Car Loan

What's the difference between flat rate and reducing balance interest?

Flat-rate interest is charged on the full original loan amount for the entire tenure, even as you pay it down -- reducing-balance interest is charged only on what's still outstanding, so it falls every month as you repay. A flat rate quoted at the same percentage as a reducing-balance rate is effectively much more expensive; always confirm which method a lender is using.Read more: Rate Hikes Travel First Class, Rate Cuts Walk

Will improving my credit score lower my loan interest rate?

Usually, yes. Lenders price risk into the interest rate they offer, and a higher credit score signals lower risk, which typically qualifies you for better rates. It varies by lender and loan type, but it's one of the few loan-cost factors largely within your control before you apply.Read more: The Credit Card Minimum Due Is Designed to Keep You Paying Forever

Estimates only, not financial advice. See our Disclaimer.