Loan Repayment vs Investments Calculator

Compare paying down a loan early against investing the same funds to see which path builds more long-term wealth.

Client details

Loan

Outstanding loan amount

₹

₹40 L

Loan interest rate (p.a.)

Remaining tenure

Plus months

Prepayment penalty

Usually nil on floating-rate home loans

Other charges

₹

Flat fees, if any

Surplus funds

Amount available to prepay or invest

₹

₹5 L

Expected return on investment (p.a.)

Investment horizon

Leave blank to match the remaining loan tenure

If prepaid, the bank will

Tax

Tax on investment gains

e.g. 12.5% LTCG on equity; slab rate for debt/FDs

Loan interest is tax-deductiblee.g. home loan interest under Section 24(b), old regime

Recommended: invest the surplus

It leaves the client ₹5,65,211 better off over 15 yr, assuming a 12% return.

Investing wins only if the investment earns more than 9.77% a year (the break-even return).

Investment returns aren't guaranteed, while interest saved on a loan is certain. Weigh the client's risk appetite before choosing.

Total interest saved

₹10.99 L

Over the rest of the loan, if prepaid

Net benefit of prepaying

₹13.92 L

After charges, over 15 yr

Projected investment value

₹27.37 L

Pre-tax, after 15 yr

Break-even return

9.77%

Investing must beat this

Prepay the loan

Loan closes in 11 yr 9 mo — 3 yr 3 mo sooner.

Net gain

+₹13,91,974

Interest saved: +₹10,99,052
Returns on freed-up EMIEMIs no longer due, invested after tax: +₹2,92,922
Prepayment charges: ₹0

Invest the surplus

Better option

Loan continues at ₹39,978 EMI; ₹5 L invested at 12% p.a.

Net gain

+₹19,57,185

Amount invested: ₹5,00,000
Projected valueAfter 15 yr: ₹27,36,783
Gains: +₹22,36,783
Tax on gainsAt 12.5%: −₹2,79,598

Year-by-year comparison

Net gain of each option if measured at the end of each year.

After	Prepay loan	Invest surplus	Difference	Better
1 yr	+₹45,548	+₹52,500	₹6,952	Invest
2 yr	+₹95,245	+₹1,11,300	₹16,055	Invest
3 yr	+₹1,49,469	+₹1,77,156	₹27,687	Invest
4 yr	+₹2,08,633	+₹2,50,915	₹42,281	Invest
5 yr	+₹2,73,187	+₹3,33,524	₹60,338	Invest
6 yr	+₹3,43,621	+₹4,26,047	₹82,426	Invest
7 yr	+₹4,20,471	+₹5,29,673	₹1,09,202	Invest
8 yr	+₹5,04,322	+₹6,45,734	₹1,41,412	Invest
9 yr	+₹5,95,812	+₹7,75,722	₹1,79,910	Invest
10 yr	+₹6,95,636	+₹9,21,309	₹2,25,673	Invest
11 yr	+₹8,04,553	+₹10,84,366	₹2,79,812	Invest
12 yr	+₹9,23,639	+₹12,66,989	₹3,43,350	Invest
13 yr	+₹10,58,507	+₹14,71,528	₹4,13,021	Invest
14 yr	+₹12,13,477	+₹17,00,612	₹4,87,134	Invest
15 yr	+₹13,91,974	+₹19,57,185	₹5,65,211	Invest

How this is calculated

Both options are compared over the same 15 yr horizon with the same monthly outflow. Net gain is measured against leaving the surplus idle.
Prepaying frees up cash (a lower EMI, or no EMI once the loan closes early). That cash is assumed to be invested at the same expected return, so prepaying isn't under-credited.
Loan interest is computed monthly on a reducing balance. Returns compound monthly at the equivalent of the annual rate; tax on gains is applied once, at the end of the horizon.
Prepayment charges are paid on top of the surplus. The interest deduction is applied per 12-month year up to the cap. Principal deductions (e.g. Section 80C) and inflation are not modelled.
Projections are illustrative, not guaranteed returns.