It is the most asked question on social media: Should you invest or prepay the loan? Now, to answer that correctly, you have to understand your loan percentage. If you have a loan with a high interest rate, like 10% or more, it's always better to prepay the loan and get out of debt. This is because you will end up paying a lot of interest if the rate is high.
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Instead of keeping paying the interest on an interest loan, it's better to pay the loan. But say if you have a loan with a low interest rate, like a home loan where you can get the loan at 8 to 8.5%, then it is totally different. In the last 10 years the Nifty has given around 13% returns, and in future also if we continue to get above 10% then it is better to invest rather than paying the loan because in the loan you are giving 8% interest whereas you will get more than 10% returns for your investment.
Now people might say that we want to decrease the loan burden, which is also good, so for that,t you can do both. Try to invest an amount and along with that pay 1 EMI extra every year, with that you will continue to invest and get more returns and along with that your tenure will decrease when you pay 1 EMI extra. In this way, you will be paying less interest in the loan, and along with that you will earn good interest for your investment.
10% is the bare minimum you will get but think about it if you earn more than 12% then how much you will be earning more than the interest you are paying for the loan. So in my opinion, investing is better than pre paying the loan if you have low interest rate loans like a Home loan. Whereas pre paying is better than the investing if you have a higher interest rate loan.
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