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You have a lump sum sitting in your account. Should you pre-close your loan — saving certain interest — or invest it in the market for potentially higher returns? Enter your loan details for a side-by-side comparison.
Pre-closing saves you interest at your loan rate — a certain, known saving. Investing gives you potential market returns — but these are uncertain.
As a general rule: if your loan rate exceeds 10%, pre-closure often wins. If your loan rate is below 8% (e.g. home loan), investing in equity may yield more over a long horizon.
Also factor in: tax benefits on home loan interest (Section 24b), your risk tolerance, and whether you have an adequate emergency fund before prepaying.
Investing ₹5.00 L at 12% for 10.0 years grows to ₹15.53 L — a gain of ₹10.53 L, which beats the ₹5.10 L you'd save by prepaying. But market returns are not guaranteed.
Your loan costs 8.5% p.a. For investing to beat prepaying, your market returns must exceed 102.0% p.a. after tax — consistently, over 10.0 years. That is a high bar — equity markets can deliver this but not reliably every year.
Illustrative only. Market returns are assumed constant — actual returns fluctuate. LTCG tax of 10% on equity gains above ₹1L/year not deducted from market scenario. Pre-closure charges (if any) not included. Not financial advice.