Loan Prepayment vs SIP Calculator
Use this free loan prepayment vs SIP calculator to compare two uses of an extra amount every month: prepaying your loan, or investing it in a SIP. Enter the loan, its rate and the years left, the extra amount, and the SIP return you assume. The calculator shows how soon the loan would close, the interest saved, and which route ends with more money.
How this loan prepayment vs SIP calculator works
Both routes put the same total money out every month: your EMI plus the extra amount. In the prepay route, the extra amount goes towards the loan principal every month, so the loan closes sooner. After that, the whole amount (the EMI plus the extra) is invested in a SIP until the original end date. In the invest route, you pay the EMI as scheduled, and invest the extra amount in a SIP for the whole period. At the original end date, both routes have no loan, and the calculator compares what you hold in investments. For example, with a ₹40 lakh loan at 8.5% with 15 years left and ₹10,000 extra every month, prepaying clears the loan after 10 years and 1 month, which is 4 years and 11 months sooner, and saves about ₹11.2 lakh of interest. It ends with about ₹40.0 lakh in investments. Investing the ₹10,000 at 12% for the whole period ends with about ₹50.5 lakh, which is about ₹10.4 lakh more. The result is an illustration, not a forecast.
The break-even return
The calculator also shows the SIP return at which the two routes end level. It is close to the loan’s own interest rate, about 8.5% in this example, because prepaying earns a saving equal to the loan rate. If you expect your investments to earn more than that after tax, investing comes out ahead on paper, and if you expect less, prepaying does. The two are not equal in risk, though. Prepaying earns a certain saving at the loan rate, while a SIP’s return is uncertain, and can be low or negative for years.
What to weigh besides the numbers
Tax can change the picture. Interest on some loans, such as a home loan, may qualify for a tax benefit that lowers the real cost of borrowing, and gains on mutual funds may be taxed. Some loans charge for prepayment. Your comfort with debt, your emergency fund and your other goals matter too. Many people also do both, using part of the extra amount for each.
What this calculator does not include
Taxes, tax benefits on loan interest, prepayment charges and fees are not included. The SIP return is a steady assumption, while real returns vary from year to year. Both routes assume a fixed loan rate. This is a way of exploring a decision, not advice to prepay or to invest.
Frequently asked questions
Should I prepay my loan or invest?
There is no single answer. It depends on the loan rate, what your investments may earn, tax, how long you can stay invested, and how you feel about debt. A guaranteed saving at the loan rate is worth more than an uncertain return of the same size. We would be happy to talk it through with you.
Why does the break-even return match the loan rate?
Each rupee prepaid saves interest at the loan rate, which is like earning that rate with no risk. A SIP only comes out ahead if it earns more than that. The match is a useful check that the calculator is working as it should.
Is the return shown guaranteed?
No. Mutual fund returns are market-linked and can be higher or lower than the rates you enter. Mutual fund investments are subject to market risks. Read all scheme related documents carefully. Learn more on the AMFI investor awareness site.
How much does my EMI come to?
Our EMI calculator shows the EMI, the total interest and a year-by-year table for any loan. To see what a SIP could grow to, try our SIP calculator.
Is my information saved?
The calculations run in your browser. The figures you enter are not sent to us or stored unless you choose to send them, for example by using the WhatsApp button.