💸 Prepay vs. Invest
Find out if your surplus cash works harder clearing debt or compounding in the market.
The extra amount you can afford to pay towards the loan OR invest as an SIP every month.
If you Prepay
Total Interest Saved
₹0
If you Invest
Total Portfolio Value
₹0
How this calculation works
• The simulation: Both paths start with the same loan balance and monthly surplus. The calculator runs a month-by-month amortisation to find the exact interest paid and payoff date under each scenario.
• Prepay path: Your surplus is added to the standard EMI each month. The loan clears early. Once it does, the full freed-up amount (EMI + surplus) is invested for the remaining months of the original tenure.
• Invest path: You pay only the standard EMI and invest the surplus as an SIP every month for the full original tenure. The SIP compounds at your expected market return.
• The verdict: Both paths are compared on terminal liquid wealth at the end of the original loan tenure. Because total out-of-pocket cash outflow is identical in both scenarios, the comparison is fair.
Worked example
Setup: Loan balance ₹50 L · Rate 8.5% · 15 years remaining · Monthly surplus ₹10,000 · Expected market return 12%.
Standard EMI = ₹49,237/mo. Total standard interest over 180 months ≈ ₹38.6 L.
Prepay path: Accelerated EMI = ₹59,237/mo. Loan clears in ~130 months (~10.8 years). Interest paid ≈ ₹26.5 L — saving ~₹12.2 L in interest and 4.2 years. The unused part of the final loan payment and the freed-up ₹59,237/mo are invested for the remaining period, building a corpus of ~₹39.5 L.
Invest path: ₹10,000 SIP at 12% for 180 months → portfolio ≈ ₹50.5 L.
Verdict: Investing wins by ~₹11.0 L in terminal wealth. The interest saving from prepayment (₹12.2 L) is real and guaranteed, but the long compounding runway of a 15-year SIP at 12% produces more wealth at these rates.
Note: Lower your market return to 8–9% and the verdict flips — showing where the crossover lies for your assumptions.
When is this tool useful?
• You have a home loan (or any term loan) and have built up a monthly surplus beyond your regular EMI.
• You are unsure whether to make a part-prepayment or start / top up a SIP.
• You want to understand the crossover — at what market return does investing stop being worth it?
Assumptions & exclusions
• The surplus is assumed constant every month. If it varies, the actual outcome will differ.
• Market returns are assumed constant and pre-tax. Actual equity returns are volatile and taxable (LTCG at 12.5% above ₹1.25 L/yr for equity mutual funds under current rules).
• Home-loan interest deductions under Section 24(b) (old regime, self-occupied, up to ₹2 L/yr) and Section 80C principal deductions (old regime, up to ₹1.5 L/yr) are not modelled — 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. Most floating-rate home loans allow this; fixed-rate or personal loans may charge a foreclosure fee.
• No liquidity premium is applied: a SIP can be partially redeemed in an emergency; a prepaid loan 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 is a guaranteed, risk-free return equal to your loan interest rate. If your loan rate is 9% and you expect 10–11% from markets, the margin is thin and the risk may not be worth it. Prepayment also reduces your EMI burden if your income is unstable.
At what market return does the verdict flip?
Roughly, if your expected market return (after tax) is lower than your effective loan interest rate (after any applicable tax deduction), prepayment wins. Reduce the market-return input until the verdict changes — that crossover rate is your personal break-even.
Should I fully prepay or make partial prepayments?
This calculator models a fixed monthly surplus. A lump-sum part-prepayment (e.g. annual bonus) has a larger immediate impact on principal and is not separately modelled — use the EMI calculator to see how a lump-sum reduces remaining tenure.
Does loan type matter?
Yes. Home loans typically have the lowest rates and allow free prepayment (floating rate). Personal and car loans have higher rates and may have foreclosure charges. The higher the loan rate, the stronger the case for prepayment.
Compare another money decision
Check the EMI, model prepayment impact, or compare another large purchase decision.