Loan interest is generally calculated on outstanding principal. A prepayment reduces that principal earlier, so future interest can fall. The result depends on the lender agreement, rate type, timing and fees.\n\n## Tenure reduction versus instalment reduction\nKeeping the instalment similar after prepayment usually shortens the remaining tenure. Reducing the instalment instead may preserve the tenure but improve monthly cash flow. Ask the lender how the payment will be applied.\n\n## Compare the complete cost\nInclude prepayment charges, taxes and the return you might otherwise earn on the cash. Keep an emergency buffer before sending a large amount to debt.\n\n## Record principal accurately\nA loan prepayment is not the same as a normal expense. Link it to the loan balance so net worth and interest reporting remain consistent.