Foreclose or invest
Should spare money go into your loan or into an investment? See the return an investment must earn to beat paying the loan down, next to today's FD rates and what funds actually returned. Free, no signup.
The outstanding principal, from your loan statement.
The rate your lender charges, as in your loan statement.
Leave empty and we work it out from the amount, rate and time.
Floating-rate loans taken by individuals can usually be closed or part-paid without a charge. Fixed-rate loans and some lenders charge 2 to 5%. Your loan agreement says which applies to you.Floating-rate loans usually have none; fixed-rate ones often 2 to 5%. Check your agreement.
Lets us check what would be left in hand. Never stored.
FinResp analyses. You decide. This is information only, not financial advice. We do not know your loan agreement, your tax position or your need for cash. Fund figures come from the AMFI daily NAV history and FD rates collected from banks' published rates, which can change at any time; past returns do not guarantee future ones. Mutual fund investments are subject to market risks; read all scheme related documents carefully.
What to look at next
How it works, questions and more tools
How it works
- Enter your loan. The amount you still owe, the rate, and the time left. Add your EMI if you know it; otherwise we work it out.
- Say what the lender charges and how much you have. Some lenders charge for closing early. Choose enough to close the loan, or a set amount to see part payment.
- Read the break-even return. It is the yearly return an investment must beat for investing to end up ahead of paying the loan down.
- Compare with the real world. We show it next to the best FD rate today and what funds of your chosen type actually returned.
Questions people ask
Is it better to foreclose a loan or invest the money?
It depends on one comparison: does the investment earn more than the loan costs, after charges and tax? Paying a loan down gives a certain return equal to its interest rate. An investment can earn more, but is not certain. This tool works out the break-even return so you can judge.
What is the break-even return?
The yearly return an investment must earn for investing to finish level with paying the loan down. If you expect to beat it, investing comes out ahead; if not, paying the loan does. It is lower than the loan's rate when the lender charges for closing early.
Why is the break-even shown higher than my loan rate?
Lenders quote a yearly rate that is charged monthly, so a 11.5% loan really costs about 12.1% over a year once the monthly charging is counted. Investment returns are quoted as yearly returns, so we put both on the same basis.
Do banks charge for closing a loan early?
For floating-rate loans taken by individuals, banks and most regulated lenders cannot charge a prepayment or foreclosure fee. Fixed-rate loans, and loans from some lenders or taken in a business name, may charge about 2 to 5%. Your loan agreement tells you.
Should I part-pay or close the loan fully?
Part-paying lets you keep some cash and still saves interest. You can keep the EMI the same and finish sooner, which saves the most interest, or lower the EMI and keep the end date, which eases monthly cash. The tool shows both.
What about the tax benefit on my home loan?
Interest on a home loan can give a tax deduction under the old tax regime, and an education loan's interest can too. Closing the loan early gives up that deduction. The break-even here leaves tax out, so work out your own position.
Where do the fund returns come from?
From real history. For each fund type we took every Direct-plan Growth fund in the AMFI records that is still running, invested once in every month since 2013 and measured the yearly return after the loan's remaining time. Funds that closed or merged are missing and the period was mostly rising, so the results flatter funds.
Does closing a loan early affect my credit score?
Closing a loan in good standing does not usually hurt a credit score in a lasting way, though it can move a little in the short run because an active account with a good record disappears. Check with a credit bureau if it matters to you.
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