Imagine this:
You get a ₹1 lakh bonus. Should you prepay your loan vs invest it somewhere?
Many people face this exact situation, and honestly, the answer is not always simple.
So let’s break it down — with numbers, calculators, and real logic — to help you make the best money move.
🔍 First, What Does Prepaying a Loan Mean?
Prepayment means you pay a part (or full) of your remaining loan before the original tenure ends.
This helps reduce:
- Your EMI amount
- Or your loan duration
- And saves on total interest
But… is it always the better option? Not necessarily.
🧮 The 2 Tools You Need
To decide smartly, you need:
✅ 1. EMI Calculator
To see how much interest you’ll save if you prepay
🛠 Try EMI Calculator
✅ 2. SIP or Investment Calculator
To see how much your money will grow if you invest it instead
🛠 Try SIP Calculator
💡 Let’s Take a Real-Life Example on prepay loan vs invest
You have:
- ₹3,00,000 loan left
- EMI: ₹9,500/month
- Interest: 11%
- Remaining tenure: 3 years
- Extra ₹50,000 in hand
🔹 Option 1: Prepay ₹50,000
→ Use EMI Calculator
New EMI becomes ₹7,080
OR
Keep EMI same and reduce tenure
Total interest saved: Around ₹10,000–12,000
🔹 Option 2: Invest ₹50,000 in SIP for 3 years
→ Use SIP Calculator
Assuming 12% return
Final value ≈ ₹71,000
Gain ≈ ₹21,000
📊 So Which is Better: prepay loan vs invest?
| Action | Net Benefit |
|---|---|
| Prepay Loan | Save ₹10–12k interest |
| Invest in SIP | Earn ₹21k approx |
Looks like investing wins, right?
But wait…
❗ When You SHOULD Prepay the Loan
✔️ If the loan interest is higher than your expected investment return
✔️ If it’s an unsecured loan (like personal loan with 13–18% interest)
✔️ If you’re near retirement or want to reduce debt stress
✔️ If you dislike monthly EMIs emotionally
❗ When You SHOULD Invest Instead
✔️ If the loan interest is low (like home loan at 8%)
✔️ If you can earn more via SIP or FD
✔️ If you have good discipline and don’t overspend invested funds
✔️ If you already have an emergency fund
🙋 Bonus Case: Mix Both
If unsure — split the ₹50,000:
- Prepay ₹25,000 (reduce interest + EMI)
- Invest ₹25,000 in SIP (grow wealth)
This way, you enjoy lesser debt + growing money.
💬 What People Usually Ignore
❌ Emotional relief from closing a loan early
❌ Tax benefit loss (for home loans) after prepayment
❌ Early foreclosure charges (some banks charge 1–2%)
❌ Risk of investing (stock markets aren’t guaranteed)
✏️ Final Thoughts on Prepay Loan vs Invest
There’s no one-size-fits-all answer.
📌 Ask yourself:
- Do I want peace of mind (prepay)?
- Or am I okay with risk and aiming for higher return (invest)?
- Or maybe both?
Let math + mindset guide your decision — not peer pressure.