Loans · Decision

Loan Pre-closure vs Invest in Market

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.

Your loan details

Outstanding Loan (₹)₹20.00 LLoan Interest Rate (% p.a.)Remaining Tenure (months)10.0 years · EMI: ₹24,797/moLump Sum Amount (₹)₹5.00 LExpected Market Return (% p.a.)Equity index funds have returned ~12–13% over long periods

Our verdict

Invest in the market

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.

Investing is better by ₹5.43 L

Option A

Pre-close the loan

Interest saved₹5.10 L

Equivalent return102.0% p.a.

RiskZero (guaranteed)

Tax on benefitNone

Tenure shortened by~40 months

✓ Recommended

Invest in market

Corpus at end₹15.53 L

Profit (gain)₹10.53 L

Expected return12% p.a.

RiskMarket risk (variable)

LTCG tax (10%)Applicable on gains

Break-even market return

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.

Loan effective return: 102.0%Your market return: 12%

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.

How to Decide

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.