Loan vs Investment
Prepay loan or invest the money?
₹5,00,000
Core logic: if after-tax investment return > loan rate, investing mathematically wins. If loan rate is higher, repay first. Tax changes the picture significantly.
Smart move
INVEST THE MONEY
₹15.5 L
If you Invest
₹8.1 L
Interest Saved
₹7.4 L
Net Advantage
3.0%
Return − Loan Rate
Why invest wins here
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The math, simply
You have a lump sum. You can either prepay your loan (saving future interest) or invest it (earning future returns). The winner depends on:
- Loan interest rate — a guaranteed "return" if you prepay.
- After-tax investment return — uncertain but often higher for equities.
- Time horizon — longer horizons favour investing (compounding + risk premium).
- Risk tolerance — prepaying is risk-free; investing is not.
Hybrid approach: split the amount — prepay part to reduce EMI stress, invest part to keep wealth compounding. Many financial planners recommend this.