How does prepayment affect machinery loan EMI calculations?

Prepaying your machinery loan can reduce the total interest paid over the loan term and lower your EMI. When you make a prepayment, extra funds are applied towards the principal. This reduces the outstanding balance on which interest accrues.

For example, if you prepay ₹1 lakh on a ₹10 lakh machinery loan with a 15% interest rate and 5-year tenure, the principal will reduce to ₹9 lakhs. Interest will now be charged on this lower amount.

With less interest accruing, more of your EMI goes towards repaying the principal. This increases the portion of principal repaid with each EMI. The loan tenure can also be shortened if the EMI amount stays the same.

However, some loan providers charge a prepayment penalty, so check if your machinery loan comes with these charges. Compare prepayment options to make an informed decision. Use online EMI calculators to estimate the impact on your loan. Prepaying annually or bi-annually rather than lump sum may be more optimal.