Table of Contents
Prepayment vs Part-Payment: Which One to Choose?
| Factor | Prepayment (Full Closure) | Part-Payment (Lump Sum) |
|---|---|---|
| Debt Freedom | Loan fully closed | Loan continues |
| EMI Reduction | No EMI left | Lower EMI |
| Interest Savings | Maximum savings | Significant savings |
| Liquidity | Drains savings | More financial flexibility |
| Prepayment Charges | May apply (1%-5%) | May apply (1%-3%) |
| Tax Benefits | Lost (Home Loan) | Still available |
What is Prepayment and Part Payment?
Prepayment and Part Payment are financial terms related to loan repayments, particularly when you want to pay more than the regular EMI. While they may seem similar, they serve slightly different purposes:
1. Prepayment
- Definition: Prepayment refers to paying off the entire outstanding loan amount before the end of the loan tenure.
- Purpose: It is done to fully close the loan earlier than scheduled.
- Impact:
- Eliminates the loan entirely, saving on future interest payments.
- Typically involves higher costs or penalties, depending on the loan terms.
- Often used for loans with high interest rates when the borrower has accumulated enough funds to settle the loan.
2. Part Payment
- Definition: Part payment means paying a lump sum amount in addition to your regular EMIs but without closing the loan.
- Purpose: It is done to reduce the loan principal amount, which in turn reduces the EMIs or the loan tenure.
- Impact:
- Lowers the total interest payable over the remaining loan period.
- Keeps the loan active but with lower financial burden.
- May incur minimal or no penalties, depending on the lender’s policies.
To know more about prepayment go to Finance Inside Emi Calculator With Multiple Prepayment Online
Comparison between Prepayment vs Part-Payment
| Aspect | Prepayment | Part Payment |
|---|---|---|
| Nature | Full repayment of the loan. | Partial repayment of the loan. |
| Goal | Close the loan entirely. | Reduce the principal amount. |
| Effect on Tenure | Ends immediately. | Loan tenure can be reduced. |
| Effect on EMI | Ends EMI payments. | Reduces EMI or shortens tenure. |
| Interest Savings | Maximum, as no further interest applies. | Moderate, as interest is recalculated. |
| Penalties | Higher or full prepayment charges. | Lesser or no charges (varies by lender). |
Choosing Between Prepayment and Part Payment
- Prepayment is ideal if you want to become debt-free quickly and have enough funds to settle the full loan.
- Part payment is better if you have surplus funds but want to retain liquidity while still reducing your loan burden.
Where can you find a prepayment EMI calculator?
Fincal EMI calculator is the most popular calculator available in market to calculator EMI along with multiple prepayment. it provide various options to add prepayments like One Time, Monthly, Yearly, quarterly.
Also finance and bank prepayment calculators also available such Tata Capital, Bajaj Finserv, ICICI Bank, and SBI.
Fincal EMI calculator With Prepayment Online or FIncal Mobile App will provide you this functionality on to get rid of tiresome job or visit to bank to calculate forecasted plan of of your loan closure. Fincal EMI calculator provide you best solution to visualize your EMI + principle + interest+ prepayment graph.
Pros of prepayment
- Become Debt-Free Early – No more EMIs or financial stress.
- Save Huge Interest Costs – The longer a loan runs, the more interest you pay. Prepaying reduces this.
- Improves Credit Score – Clearing loans early boosts CIBIL score & creditworthiness.
- Better Loan Eligibility – Freeing up debt increases eligibility for future loans.
- No More EMI Burden – Increases monthly cash flow for other investments.
Cons of Prepayment
- Prepayment Charges – Some banks/NBFCs charge 1%–5% of the outstanding amount.
- Loss of Tax Benefits – Home loan borrowers lose Section 80C & 24(b) tax deductions.
- Liquidity Issue – Using all savings for prepayment can create a cash crunch.
- Opportunity Cost – If you prepay instead of investing, you might miss out on better returns elsewhere.
Pros of Part-Payment (Lump Sum Partial Prepayment)
- Lower EMI or Loan Tenure – You can choose to either reduce EMI or shorten the loan period.
- Interest Savings – Part-payments reduce the principal amount, lowering interest.
- No Total Cash Drain – You don’t need to empty savings like full prepayment.
- Keeps Tax Benefits Intact – Home loan borrowers can still claim deductions under 80C & 24(b).
Cons of Part-Payment
- Prepayment Fees May Apply – Some lenders charge fees for partial prepayment.
- Impact on Future Investments – Using excess cash for part-payment may reduce funds for other investments.
- No Immediate Loan Closure – EMIs continue, just at a lower amount.
When to Choose Prepayment vs Part-Payment?
Prepay Fully If:
- You have surplus cash & don’t need liquidity.
- Prepayment charges are low or zero.
- Your loan interest rate is high (personal/car loans).
Opt for Part-Payment If:
- You want to save interest but still keep some liquidity.
- You want to reduce EMI or tenure without losing tax benefits.
- Your home loan interest is low (prepayment may not be urgent).
Final Verdict
- Prepayment = Best for clearing high-interest loans (personal, car loans) & becoming debt-free.
- Part-Payment = Best for reducing EMI while keeping tax benefits & cash reserves.