Paying Off Debt vs. Investing: How to Make the Right Choice

Pay Off Loan Early or Invest? A Practical Guide to Becoming Debt-Free with advice on financial flexibility and long-term growth.
October 02, 2024
Should I Pay Off My Loan Early or Invest?
Debt Free Planning Blog

Should I Pay Off My Loan Early or Invest? Let's Look at the Numbers!

Many of you have asked if it's better to use your extra money to pay off your loans early or invest it for the long term. Let’s break it down with an example:

Assume you have a home loan of ₹1 crore with an interest rate of 8.5%, and a tenure of 20 years. Your EMI is ₹86,000 per month. You also have a surplus of ₹25,000 each month. Should you:

  • Pay this ₹25,000 as extra EMI to close the loan faster, or
  • Invest it in a mutual fund earning a return of 12%?

If you invest ₹25,000 in a mutual fund each month at 12%, you will have enough to pay off your home loan in 11 years (131 months). Alternatively, if you put the same amount towards extra EMIs, you will close the loan in 12 years (143 months).

While both approaches help you get debt-free around the same time, the investing route gives you liquidity and flexibility, allowing you to access your money in case of emergencies.

Now, let's check out this video that explains this decision with a detailed example:

Ultimately, the choice comes down to your financial goals and peace of mind. If you prefer flexibility, investing might be better for you. However, if being debt-free sooner is more important, paying off your loan early is a good option too!

Published At: Oct 02, 2024 11:15 pm
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