Should I Prepay My Loan or Invest?

What does this tool do?

You have a lump sum of money (bonus, savings, maturity amount). Should you use it to prepay your loan, or should you invest it in mutual funds/FDs? This tool compares both choices and tells you, in plain words, which leaves you richer at the end of your loan tenure.

Who is it for?

Anyone with a running home loan, car loan or personal loan and some spare money — salaried people, business owners, NRIs.

How to use it (step by step)

1. Open the 🧮 Calculator tab.
2. Enter your outstanding loan amount, interest rate and months remaining.
3. Your EMI is auto-calculated. If your actual EMI differs, type it in.
4. Enter the lump sum you have and the return % you expect if you invest it (e.g. 11-12% for equity funds, 7% for FD).
5. If it is a home loan, tick the 24(b) tax benefit box and choose your tax slab — because home loan interest saves you tax, prepaying it loses that benefit.
6. Read the verdict banner and the detailed comparison.

Example use cases

• Priya got a ₹5 lakh bonus. Home loan at 8.5%, expects 12% from equity SIP-style investment → investing usually wins mathematically, but prepaying gives guaranteed savings.
• Rahul has a personal loan at 14%. Almost no investment reliably beats 14% — prepay wins.
• A retiree with an FD offering 7% and a home loan at 9% — prepaying is the better guaranteed choice.

Good to know

• Loan interest saved is a guaranteed return; investment returns are not guaranteed. The verdict mentions this.
• Scenario A assumes you keep paying the same EMI after prepayment, so the loan finishes earlier, and the freed-up EMIs are then invested until the original end date — a fair apples-to-apples wealth comparison.
• Tax on investment gains (e.g. capital gains tax) is not deducted — mentally shave your expected return a little if investing in taxable products.