If you have taken out a number of loans for various reasons and you are short of repaying them at the same time, which loan should you repay first?

Ideally, one should limit one’s expenses to the amount one earns. However, to buy long-term assets such as a house to save on rent, machinery to increase earning capacity, etc., or for higher education to increase employability, one may need a large amount of money. In such cases, in order to add value and/or earn more, it doesn’t hurt to take out loans instead of spending time raising funds and missing out on opportunities.

When taking out a loan, however, an obligation arises to repay it with interest. Thus, one should avoid borrowing for the purchase of luxury items, which naturally depreciate and do not add value or increase earning capacity.

If you have taken out a number of loans for various reasons and you are short of repaying them at the same time, which loan should you repay first?

“The moment a person takes out a loan, the immediate and obvious priority is to repay it. However, having a home loan (along with other financial obligations) for a longer period of time can be an advantageous arrangement. It has certain hidden qualities that an individual can enjoy,” said Rajat Gandhi, founder of Faircent.com.

“Therefore, paying off a credit card bill or a personal loan should be a priority compared to a home loan,” he added.

Gandhi lists the following three reasons and describes why setting the mortgage last isn’t a bad idea:

Lowest Interest Rates

Home loans have the lowest fees or interest rates (compared to others). Therefore, it is preferable to pay off the loans – credit cards and personal loans – with the higher interest as a priority. They have interest rates up to 40 percent. By comparison, some financial institutions offer mortgage rates as low as 6.5-7 percent for select applicants.

tax benefits

Unlike a personal loan, credit card or car loan, home loans offer a tax break on interest and principal repayments. Under Section 80C of the Income Tax Act, 1961, there are benefits to home loans, such as tax savings on both principal and interest payments, which prove beneficial in the long run because a home is a valuable asset.

Creation of assets

With a home loan you build up capital for yourself. A consumer loan or car loan can also help you buy and own an asset, but they are depreciated. There is no greater sense of success than paying off or closing a loan early. While doing the same, keep in mind that there may be additional early payment penalties in the case of a personal or car loan. On the other hand, home loans are usually free of such penalties (however, it is always preferable to have this checked with your bank or financial institution). Don’t forget to apply for a NOC after paying the full closing fee and make sure it’s updated in the credit authority’s database.

“Even if paying off a loan is an obvious response. However, if there are several financial obligations, it is advisable to pay the home loan last due to the above reasons,” said Gandhi.


This post Do you have multiple loans? Three reasons why you should settle the home loan last was original published at “https://www.financialexpress.com/money/have-multiple-loans-three-reasons-why-you-should-settle-the-home-loan-last/2465084/”

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