Prepayment
What Prepayment means
An extra payment made towards the loan principal over and above scheduled EMIs, reducing the outstanding balance faster. This lowers total interest paid and can shorten tenure significantly.
Example
Making a single ₹50,000 prepayment in Year 2 of a ₹40 lakh, 20-year home loan at 9% saves approximately ₹1.4 lakh in total interest and reduces tenure by 4 months.
This definition is based on RBI – Circular on Prepayment Charges ↗. We link every figure to its primary source — see our data methodology.
Related repayment terms
- AmortisationThe gradual repayment of a loan through regular EMIs, where each payment covers the interest accrued for that period plus a slice of outstanding principal. Early EMIs are mostly interest; later EMIs are mostly principal.
- Amortisation ScheduleA month-by-month table showing how each EMI is split between interest and principal, along with the outstanding balance after every payment.
- Balloon PaymentA large lump-sum payment due at the end of a loan tenure, with smaller-than-normal EMIs during the repayment period. Common in vehicle and commercial loans.
- DisbursementThe actual release of sanctioned loan funds — to the borrower's bank account or directly to the seller, builder, or institution. Interest accrues from the disbursement date, not the sanction date.
- EMIA fixed monthly payment combining both the interest charges for the period and a portion of principal repayment, calculated so the outstanding balance reaches zero by the last instalment.
- ForeclosureFully closing a loan account before its scheduled maturity by paying off the entire outstanding principal in one lump sum. RBI prohibits foreclosure charges on floating-rate retail loans.