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About the Business Loan Prepayment Calculator
A seasonal surplus put against an expensive business facility is a guaranteed return equal to the loan rate — usually 14–18%, which is better than most businesses earn on idle cash.
Balance it against working capital needs. Money used to prepay a term loan is gone from your current account, so keep enough buffer for payroll and supplier cycles before you commit a lump sum.
The formula
Because interest is charged on the reducing balance, every rupee of prepayment stops all future interest on that rupee.
Things worth knowing
Frequently asked questions
Hold enough for three months of operating costs, then prepay the highest-rate facility with the surplus. Cash in a current account earns nothing while the loan costs 14–18%.
Often, since many are fixed-rate or made to non-individual borrowers, which places them outside the RBI's prohibition. Typical charges run 2–4% of the amount prepaid.
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