How is the interest calculated for EMI's if I pre-pay a loan?
Interest calculated for EMI's if I pre-pay a loan
If you have taken a loan of INR 6,00,000 and you paid your EMI’s regularly for five years, and the remaining balance is INR 2,00,000, and if you now want to pay the complete balance in one go, then Interest will be calculated on the remaining INR 2,00,000, from the date when the last interest was paid. Therefore, the interest component in each instalment will keep decreasing. If the last interest was calculated on 31 Sept, 2014 and you want to prepay on 14 Jan, 2015, then the interest will be calculated for the remaining balance, up to 14th Jan, from 31st Sept.. In addition, there could be pre-closure charges as well..