Employee money guide

Loan Prepayment vs Investing

Decide whether extra money should go toward loan prepayment or investing based on interest rate, risk, and goals.

Direct Answer

Loan prepayment gives a certain saving equal to the avoided loan interest. Investing can create higher returns, but those returns are uncertain.

Key Takeaways

High-interest debt usually deserves priority.
Low-cost loans need comparison with goals and liquidity.
Emergency funds should not be fully drained for prepayment.

Compare certainty and risk

Prepaying expensive debt gives a predictable benefit. Investing has market risk, so compare after-tax cost of debt with realistic expected returns.

Do not ignore liquidity

Keep an emergency fund before aggressive prepayment. A fully prepaid loan with no cash buffer can still create stress during income disruption.

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FAQs

Should I prepay my home loan or invest?

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It depends on loan rate, tax benefit, risk appetite, time horizon, liquidity, and goal priority. There is no single answer for every employee.

Reviewed by the Saventh Financial Literacy Team. Educational information for Indian employees — not personalised advice. Mutual fund investments are subject to market risk. Saventh AMFI ARN 324457.

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