Prepay a Loan or Invest the Money: Loan Freedom, Box by Box

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You have a lump sum, maybe a bonus or a maturity amount, and a loan that charges more interest than the savings account pays. The question is whether the money should go into the loan or into an investment. The Loan Freedom calculator lays out the answer on your own numbers. This guide goes through each box, two worked examples with real output from the tool, and how to read the result. It describes what the page computes and does not tell you what to do.

What does Loan Freedom actually compare?

It compares three ways of using the same money, all valued on the same last day, which is the end of the loan as it stands today.

• Put the money in an investment. The lump sum goes into the investment now. The EMI carries on as before.
• Prepay the loan, cut the term. The lump sum goes into the loan and the EMI stays the same, so the loan ends sooner. After that, the EMI you no longer owe the lender is counted as money you invest.
• Prepay the loan, cut the EMI. The lump sum goes into the loan and the EMI comes down, so the loan runs to the same end date. The monthly difference is counted as money you invest.

The tool accounts for every rupee in each way: it goes to the lender, as an instalment, a prepayment or a charge, or it goes into the investment. The page then shows which way ends ahead on your numbers, the yearly return at which two ways end level, and the working. Your numbers stay in your browser.

What do I type in step 1, the loan you have?

Box	What to type
Loan still to repay	What the lender says is left on the loan today, in rupees.
Interest rate on the loan	The yearly rate. The same rate is used for every month.
What you know about the loan	Pick one: the months left, or the EMI you pay each month.
Months left on the loan, or EMI you pay each month	Whichever you picked.

The two choices are exclusive. If you give the months, the tool works out the EMI. If you give the EMI, the tool finds how many months it takes to clear the loan, searching up to 360 months. If the numbers cannot make a loan the tool can work with, the page asks you to check the rate and the months or the EMI.

What do I type in step 2, the money you could use?

Box	What to type
Lump sum you could put in now	The money you could hand over today.
Extra you get every year	Optional. A yearly bonus or saving that arrives each year until the loan ends.
Yearly return you expect from investing	The return a year you expect, held the same for the whole period.
Prepayment charge on the lump sum	Optional. A percent. Leave it empty if there is no charge.

You need a lump sum, a yearly extra, or both. With neither there is nothing to compare, and the page says so. When a charge is typed, it comes off the amount that goes into the loan.

What do I type for the tax and for the money I keep back?

Step 3, the tax you type. These boxes start empty and nothing is filled in for you.

• Deduction for the loan interest. Leave it on "I did not type a deduction", or choose to count one and type your marginal rate and the interest deduction cap each year.
• Tax on the investment. Choose none, tax on the gain when the holding ends (a short rate and a long rate, with an optional "held long after" in months and an optional exemption in rupees), or tax every year on the investment.

Step 4, the money you keep back. Optional. If you choose to keep a reserve, type the money you could put in, what you spend each month and the months of spending to keep back. The tool's default for the months is 6. Only the amount above that reserve can go into the lump sum, and a note appears if the reserve leaves less than the lump sum you typed.

A few of the tool's own limits: the loan up to 360 months, a loan rate up to 60%, a return up to 50%, and a prepayment charge up to 10%.

Type this: the page's own example

Press Use example numbers. It leaves every tax, the yearly extra and the charge empty.

Box	Value
Loan still to repay	Rs 50,00,000
Interest rate	8%
Months left	240
Lump sum	Rs 10,00,000
Yearly return	12%

I ran these numbers through the tool's engine. Amounts are rounded to the nearest rupee here, and the page also shows paise.

Line on the page	Result
EMI each month	Rs 41,822
Interest over the loan, 240 months	Rs 50,37,282
Investing, after tax (no tax typed)	Rs 1,08,92,551
Prepay, cut the term	Rs 57,80,348, loan ends in 153 months, 87 months sooner
Prepay, cut the EMI	Rs 82,74,526, EMI falls to Rs 33,458, still 240 months

The headline is: "Putting the money in an investment is ahead on your numbers." It is ahead by Rs 26,18,025, which is the distance from the investing figure to the next-highest way. The level point is 8.00% a year. That matches the loan's own rate of 8%, and the 12% you typed sits well above it.

The mix table shows what happens if you split the lump sum. Putting none of it into the loan ends at Rs 1,08,92,551. A quarter into the loan ends at Rs 94,57,295, half at Rs 81,32,007, three quarters at Rs 69,08,549 and all of it at Rs 57,80,348. The highest figure on the table is the one with none of it prepaid.

Under "What would change this answer", raising the return by 2 points moves the gap by Rs 47,92,535 in favour of investing, lowering it by 2 points moves Rs 31,16,519 towards prepaying, and a loan rate 1 point higher moves Rs 10,57,687 towards prepaying. In all three the answer stays with investing.

Type this: a loan given by EMI, with a yearly extra, a charge and an interest deduction

Reset the page, pick "I know the EMI I pay each month" and type the following. The 2% charge and the 30% rate are placeholders I chose to show the boxes working. Use your own.

Box	Value
Loan still to repay	Rs 30,00,000
Interest rate	9%
EMI	Rs 30,000
Lump sum / extra every year	Rs 5,00,000 / Rs 1,00,000
Yearly return	6%
Prepayment charge	2%
Loan-interest deduction	counted, marginal rate 30%, cap Rs 2,00,000 a year

The engine gives this.

Line on the page	Result
Months the loan runs as it stands	186
Interest over the loan	Rs 25,65,974
Investing, after tax	Rs 49,23,352
Prepay, cut the term	Rs 51,22,440, loan ends in 95 months, 91 months sooner
Prepay, cut the EMI	Rs 50,60,451, loan runs 168 months
Interest deduction counted, investing / cut the term	Rs 6,95,558 / Rs 2,95,476

The headline is: "Prepaying the loan and cutting the term is ahead on your numbers." It is ahead by Rs 61,989. The level point is 6.72%, and you typed 6%, which sits below it, so prepaying ends ahead. The notes on the page say that your yearly extra is added each year before the loan ends, that the prepayment charge comes off the amount that goes into the loan, and that no tax on the investment was typed, so the investment side is shown before tax.

The sensitivity list is where this example becomes interesting. Raising the yearly return by 2 points flips the answer to investing, and the page says so. Lowering the return by 2 points, turning the loan-interest deduction off and raising the loan rate by 1 point each leave prepaying ahead. A gap of Rs 61,989 on a Rs 51 lakh result is thin, and the flip shows it.

How do I read the result?

From the top of the answer:

• The headline and the gap. The way that ends ahead, written as "ahead on your numbers", and by how much. If the three ways are close, the page says they are roughly equal and shows how far apart they are.
• The three ways. Side by side, each with its figure at the end, after any tax you typed. For the two prepay routes it also shows the months the loan runs and the interest paid.
• Where the two ways end level. Two marks on one line: the return you typed and the level point. If prepaying or investing stays ahead across the whole range of 0% to 30%, the page says which.
• The mix table. What the end figure is if 0, a quarter, half, three quarters or all of the lump sum goes into the loan, with the highest one marked.
• What would change this answer. The loan-interest deduction off, the return 2 points higher or lower, and the loan rate 1 point higher. Each is re-run on its own, and the page says whether the answer flips.
• The working. Every step, from the loan as typed through the three loan runs, the tax saving, the investment and the end figures. Press Open the working, then point at a step to see the numbers it used.
• The full tables. The loan, the lump sum, the three ways and the mix table.
• Take it with you. Download PDF, Copy link, and a share image. The two small characters, Bolt the padlock and Kite the kite, only mirror the headline.

What the tool does not do

• It does not model a change in the loan rate while the loan runs, a rise in the EMI, a pause in payments or more than one loan at a time.
• It does not show a table of every instalment.
• It does not adjust for inflation, and the return you type is held the same for the whole period.
• It does not include GST, stamp duty, processing costs, surcharge or cess, or losses carried forward.
• It does not recommend a product. The comparison is only between the numbers you typed.
• It is arithmetic on your numbers, not advice about what to do with your money.

Last reviewed: October 2026. Not reviewed by a Chartered Accountant. For other tools, see the HeyArtha guides and the calculators hub. How HeyArtha's tools are built is on the Methodology page. If you are weighing a home purchase as well, the Rent vs Buy vs Invest calculator puts a home loan next to renting and investing.

Next in series: Cash vs Loan: Pay Upfront or Take an EMI?.

If the answer on your numbers flipped when the return moved by two points, how sure are you about the return you typed?

Regulatory & Educational Disclaimer: The content on HeyArtha is published strictly for educational, career awareness, and personal reflection purposes. Nothing contained in this article constitutes financial, investment, legal, or taxation advice. We are not a SEBI-registered investment advisor or research analyst. Trading and investments in financial markets involve risk of capital loss. Always consult a certified professional before making financial commitments.