Loan Prepayment Calculator
| Metric | Original Loan | With Prepayment |
|---|---|---|
| Monthly EMI | ||
| Total Interest Paid | ||
| Payoff Date |
Your Total Savings
Interest Saved:
Time Saved:
The Two Paths to Financial Freedom: Snowball vs. Avalanche
Paying off a loan early is like finding a shortcut on a long, uphill hike. It takes extra effort, but it gets you to the summit—financial freedom—much faster. When you have multiple debts, there are two popular strategies for deciding where to put your extra cash.
The Debt Avalanche: The Mathematician's Choice
This method involves making minimum payments on all your debts, then directing any extra money towards the debt with the highest interest rate first. Once that's paid off, you take all the money you were paying on it and "avalanche" it onto the next-highest interest rate debt. This method saves you the most money in interest over time. It's the most logical and mathematically sound approach. Finding the absolute best rate is key, which is where a loan comparison can be vital.
The Debt Snowball: The Psychologist's Choice
With this method, you make minimum payments on all debts, but direct extra money to the debt with the smallest balance first, regardless of the interest rate. Paying off a small loan quickly provides a powerful psychological boost and builds momentum. You get a "quick win" that motivates you to keep going. As you pay off each small debt, you roll that payment into the next smallest one, creating a "snowball" of increasing payments.
This calculator helps you see the powerful impact of extra payments on any single loan. Whether you use the avalanche or snowball method, the key is to start. Find extra money in your monthly budget and begin your journey to being debt-free!
Frequently Asked Questions
Does this calculator work for mortgages?
Yes, this calculator works for any type of amortizing loan, including mortgages, auto loans, and personal loans. Simply enter your current outstanding balance and remaining term.
What's the difference between a one-time, monthly, and yearly prepayment?
A one-time payment is a single lump sum you pay towards the principal. Monthly prepayments are smaller, extra amounts you add to your regular EMI each month. Yearly prepayments are larger lump sums you might pay annually, perhaps from a bonus or tax refund.
Why does my EMI stay the same after prepayment?
When you make an extra payment, most lenders apply it directly to the principal balance but do not automatically recalculate and lower your EMI. Instead, the loan tenure (length) is shortened, which is how you save on interest and pay it off faster. To lower your EMI, you would need to ask your lender to "recast" the loan.