Find out if your surplus cash works harder clearing debt or compounding in the market.
How the Prepay vs Invest estimate works
The calculator compares two uses of the same monthly surplus over the original loan tenure: adding it to EMI for faster payoff, or investing it monthly as a SIP.
Simulation
Both paths start with the same loan balance and surplus, then run month by month through the original tenure.
Prepay path
The surplus is added to EMI; after payoff, the freed EMI plus surplus is invested for the remaining months.
Invest path
You pay the standard EMI and invest only the monthly surplus for the full original tenure.
Verdict
The comparison uses terminal liquid wealth because total out-of-pocket cashflow is kept identical.
Worked Prepay vs Invest example
For a ₹50 L loan balance at 8.5%, 15 years remaining, ₹10,000 monthly surplus, and 12% expected market return:
- Standard EMI
- ~₹49,237/mo
- Prepay corpus
- ~₹39.5 L
- Invest corpus
- ~₹50.5 L
The prepay path clears in ~130 months and then invests the freed-up cash, building a corpus of ~₹39.5 L. The invest path keeps a monthly SIP running, so portfolio ≈ ₹50.5 L. At these defaults, investing wins by ~₹11.0 L in terminal wealth; the prepayment route still saves ~₹12.2 L in interest.
Assumptions & exclusions
The monthly surplus is assumed constant. Variable bonuses, irregular prepayments, and changing SIP amounts are not separately modelled.
Market returns are assumed constant and pre-tax; actual equity returns are volatile and taxable.
Home-loan deductions under the old tax regime are excluded; where applicable, they reduce the effective loan cost and shift the crossover in favour of investing.
The prepay path assumes the lender permits part-prepayment without penalty; some fixed-rate or personal loans may charge fees.
No liquidity premium is applied: a SIP can usually be redeemed in an emergency, while prepaid loan principal cannot be easily reversed.
Frequently asked questions
Investing wins mathematically, so should I always invest?
Not necessarily. The calculator shows terminal wealth, but investing carries market risk while prepayment gives a guaranteed return equal to your loan interest rate. If the market-return edge is thin, prepayment may feel more suitable.
At what market return does the verdict flip?
Roughly, if your expected after-tax market return is below your effective loan interest rate after any tax deduction, prepayment wins. Reduce the market-return input until the verdict changes to find your personal crossover.
Should I fully prepay or make partial prepayments?
This calculator models a fixed monthly surplus. A lump-sum prepayment has a larger immediate impact on principal and is better tested in the loan prepayment calculator.
Does loan type matter?
Yes. Home loans usually have lower rates and easier floating-rate prepayment terms. Personal and car loans often have higher rates or foreclosure charges, strengthening the case for prepayment.
Related calculators
Check the EMI, model prepayment impact, or compare another large purchase decision.