Loan Prepayment vs Investment: Which is Better?
A
MBA Finance | CFA | Ex-Banker
Published March 03, 2026
The Dilemma
When you have surplus money, should you prepay loan or invest? Here's how to decide.
Compare Interest Rates
If loan interest > expected investment returns → Prepay loan
If investment returns > loan interest → Invest surplus
Example Comparison
Home Loan: 8.5% interest
Equity Returns: 12-15% expected
FD Returns: 6-7%
Other Factors: Tax benefits on home loan, liquidity needs, risk tolerance, loan type (secured vs unsecured).
Rule of thumb: Prepay high-interest personal/card loans first. For home loans below 9%, consider investing.
About the Author
A
Admin
MBA Finance | CFA | Ex-Banker
Financial expert with 15+ years of experience in banking and personal finance.