Extra Cash in Hand? Should You Pay Your Loan or
Invest It?
This is
one of the most confusing money questions. Let’s break down when to prepay and
when to invest instead — based on logic, not emotion.
🧾 Check These First:
- Loan Interest Rate
- If your loan rate >10%,
prepaying makes sense
- If <9%, investing might
give better returns
- Investment Option Return
- FD = 6–7%
- Mutual funds = 10–12%
(average)
- Stocks = 12–15% (high risk)
- Your Mental Comfort
- Hate EMIs? Prepay.
- Comfortable with some risk?
Invest.
📊 Prepaying Benefits
- Zero risk
- Emotional relief
- Improves CIBIL (if cleared
fully)
- Saves on total interest paid
📈 Investing Benefits
- Better long-term returns
(especially via SIPs)
- Tax benefits (ELSS, ULIPs)
- Liquidity remains with you
🧠 Final Rule of Thumb
- Loan interest >
Investment return → Prepay
- Investment return > Loan
interest → Invest
For many
Indians, a 50-50 strategy works best:
Pay some loan + start SIP = balance of safety and growth.
✅ Conclusion
It’s not
about either-or. It’s about smart balance. Let your money grow, but never
let debt control you.
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