Should You Invest Your Idle Funds or Prepay The Loan Amount?

When you’ve got a bonus or if you earn some extra cash, the first thing that comes to your mind is to reduce the amount of debt that you may be under. Some people may even opt to invest the extra money to utilise it for generating additional income. However, the general opinion on how you should utilise these funds is quite varied. Read on to figure out the answer to the big question; to prepay or not to prepay?

What is Prepayment?

Prepayment is an early payment of the loan amount, over and above the regular EMI. Prepayment can be done in part or as one big lump sum depending on the funds in hand. Home Loan repayment is a long and tedious affair and it’s no surprise that that’s the first thought that comes to your mind when you have extra cash in hand.

Advantages of Home Loan Prepayment

Home Loan EMI calculation is done using an EMI calculator. Anything you pay above this EMI amount is known as prepayment. Below are the advantages of prepaying your loan:

Points to Keep in Mind while Opting for Prepayment of Home Loan

Though prepayment is a great option, below are a few things you must bear in mind:

What is an Investment?

Investment is the process of putting your money in any of these instruments — stock, bonds, fixed deposit, mutual funds, real estate, or any such vehicle.

Advantages of Investing Money

Points to Keep in Mind before Investing

Prepayment Vs Investment

How do you make this tough decision? Well, it’s easy. You’ll just have to compare the benefits of both and make an informed decision. First calculate the ROI you’ll be getting if you invest, then calculate the amount using home loan prepayment calculator, that you’ll be saving by prepaying the loan. Whichever way leaves you with a larger amount is essentially a better choice for you.

For example, let’s assume that you’re getting Rs.10,000 per annum by making an investment of Rs.1 lakh. But on the same amount you end up saving 15,000 on your interest if you use it for prepayment. So which method would you choose? Prepayment of course!

Both prepayment and investment have its own set of advantages and disadvantages. Evaluate both very carefully and choose the one which gives you better financial benefit.

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