Most of us look at loans the wrong way. 😓
We incorrectly assume that lower the interest amount paid the cheaper it is.
Well, not exactly. ❌
Instead of looking at interest amount paid we should look at effective interest rate.
For home loans and education loans the effective interest rate after tax benefits is around 4-5% !
No ask yourself this - If you have some extra money, would you want to use it to save 5% interest or invest it to get 10%-12% returns from stock market.
I know you might say stock market isn’t guaranteed. But home loans are for 20 years. Over 20 year period NIFTY has given 15% CAGR.
I’m being more conservative and assumed 10-12%.
👉🏻 For me the answer is the latter.
However, if handling loans is not your cup of tea or if you have unstable income then prepaying is the better option.
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