EMI vs Lump Sum Payment — Which Saves You More Money

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Overview

Paying a lump sum early on a loan saves significantly more interest than spreading the same amount across extra monthly EMIs. The maths behind this surprises most borrowers.

The Formula

Interest saved = Outstanding balance × Monthly rate × Remaining months (approximate)

Standard formula used by professionals worldwide

Worked Example

Step-by-step

Loan 500,000 | After 1 year: lump sum 100,000 saves ~45,000 in future interest vs zero prepayment

Key Points

Accuracy: Results are as accurate as your inputs
Units: Always use consistent units throughout
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Frequently Asked Questions

When is lump sum prepayment best?

Early in the loan when outstanding balance is highest and most future interest accrues.

Is there a prepayment penalty?

Some loans charge 1-3% of prepaid amount. Calculate if savings exceed penalty before paying.

Should I invest instead of prepaying?

If investment returns exceed loan interest rate, investing wins. If loan rate is higher, prepay.

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