This is general information, not financial advice.
When you have extra money, a lender may let you pay part of the principal early. Then you usually choose between two options.
Option 1: keep the EMI, shorten the tenure
You continue paying the same amount, and the loan ends sooner. Because you owe less for fewer months, you usually pay less total interest.
Option 2: lower the EMI, keep the tenure
Your monthly payment falls and your loan ends on the original date. This helps your cash flow, but total interest is usually higher than option 1.
Example
Suppose you pay down 20 percent of the balance. The first option may end the loan months early. The second leaves the end date unchanged but frees monthly budget.
Before you prepay
- Check for prepayment or foreclosure charges.
- Keep an emergency fund before using spare cash on debt.
- Prioritise the highest interest debt first.
- Get the updated schedule in writing.
Compare offers with loan comparison tips and learn the formula in how EMI is calculated.