1. Part-prepayment pays principal ahead of schedule
It reduces outstanding principal without fully closing the loan. Future interest can therefore fall on a reducing-balance loan because less principal remains outstanding.
Tip: Extra principal can shrink future interest.
2. Earlier prepayment often saves more
Early in a loan, more principal remains outstanding, so reducing it earlier can remove more future interest-bearing periods than the same payment made near the end.
Tip: Timing matters.
3. You may be able to reduce EMI or tenure
Depending on the loan and lender rules, the repayment schedule may be recast after prepayment. Keeping EMI similar and shortening tenure generally repays debt faster; reducing EMI improves monthly cash flow.
Tip: Choose the outcome that matches your goal.
4. Keep emergency liquidity
Do not empty the emergency fund and then need high-cost credit later. Also check current prepayment charges or restrictions for the specific loan.
Note: Liquidity comes before optimisation.
5. Quick check
Before using a bonus to prepay, what should you check?
Answer: A - Prepayment can save interest, but liquidity and contract rules still matter.