SIP vs Loan Prepayment CalculatorPay off your loan early or invest the surplus?
Compare both scenarios side-by-side. Total wealth, interest saved, time to debt-freedom — all factored in so you can decide with clear numbers.
Loan & Investment Inputs
Side-by-Side Result
Prepay Loan
₹86.83 L
Interest saved: ₹14.89 L
Debt-free in: 6.7 yrs
Invest in SIP
₹1.01 Cr
SIP corpus: ₹1.01 Cr
Interest paid: ₹24.77 L
🏆 Investing in SIP wins by
₹14.09 L
The math (and the emotion)
The mathematical answer is simple: invest if expected return > loan rate, prepay if loan rate > expected return.
But there's nuance:
- Home loans (~8.5%): Tax deduction on interest brings effective rate to ~5–6%. SIP at 12% usually wins.
- Car/personal loans (10–18%): No tax benefit. Almost always prepay first.
- Credit cards (36%+): Never carry a balance. Pay these off before any investing.
The behavioral case for prepayment
SIP returns are expected, not guaranteed. Loan interest savings are guaranteed. If volatility keeps you awake or you may need cash flexibility soon, prepayment's certainty has real value beyond the spreadsheet.
A balanced approach
Many advisors recommend splitting: use ~40–60% of surplus to prepay the loan and the rest into SIP. You get both the debt-freedom feeling and the wealth-building horsepower.
How to Use the SIP vs Loan Prepayment Calculator
Plug in your real loan balance and the surplus you actually have each month. The calculator runs both scenarios — prepay vs invest — and tells you the rupee gap, so the decision becomes a number instead of a feeling.
Enter your outstanding loan balance and rate
Use the principal still due (not the original sanction) and your current floating rate. Banks rarely send updates — check your latest statement or login to your loan portal for the exact figure.
Set remaining loan tenure in years
Use the months left, divided by 12. If your tenure was extended after a rate hike, use the new tenure. This is the horizon both scenarios are measured against.
Plug in your real monthly surplus
Surplus = take-home minus existing EMI minus all essential expenses minus existing SIPs. Be conservative — overstating surplus by ₹5,000 changes the result materially.
Use a realistic expected SIP return
10% for conservative equity, 11–12% for diversified equity, 13% only if you have a 15+ year horizon and aggressive allocation. Never plug in 15%+ — it inflates the SIP-wins gap unrealistically.
Read the gap, then decide on a split
If SIP wins by less than 15%, lean prepayment for behavioural certainty. If SIP wins by more than 30%, lean SIP. Anywhere in between, split surplus 50–50 — you capture most of the upside and most of the comfort.
Vikram, 36 — Bank Manager in Chennai
Vikram has a ₹40 L home loan at 8.75% with 18 years remaining. His EMI is about ₹36,800. After Section 24 interest deduction (₹2 L cap) at 30% slab, his effective rate is closer to 7%. He has ₹15,000 monthly surplus and is torn between prepaying or starting an equity SIP at an expected 12% return.
Prepay ₹15K monthly
₹62.4 L
Loan ends in 10.5 yrs, SIP for 7.5 yrs after
SIP ₹15K for 18 yrs
₹84.5 L
Pays full loan interest, builds corpus
SIP path advantage
+ ₹22 L
Net at end of original tenure
What Vikram learns: with his 30% tax slab and an effective post-tax loan rate of ~7%, the math favours SIP. But he is debt-averse and the ₹22 L gap doesn\'t feel worth the peace-of-mind of being debt-free at 47 instead of 54. He compromises: ₹9,000 to SIP, ₹6,000 to prepayment — captures most of the math advantage while shaving 5 years off the loan.
Common Mistakes in the Prepay vs Invest Decision
These are the errors that make people pick the wrong path — and stick with it for a decade. Most of them come from comparing apples to oranges.
Comparing pre-tax SIP return to pre-tax loan rate
A 12% equity SIP is roughly 10.5% post-LTCG (12.5% above ₹1.25 L/yr). A 9% home loan is roughly 6.5–7% post Section 24 + 80C deduction. The honest comparison is post-tax to post-tax.
Ignoring the lock-in flexibility difference
SIP corpus is liquid and you can redeem any day. Prepaid loan principal is locked into your house — getting it back means a top-up loan or LAP. If you may need cash in 2–3 years, this asymmetry matters.
Not paying off high-rate debt first
Credit card outstanding at 36% APR or personal loan at 14% APR should always be cleared before either prepaying a home loan or starting equity SIP. Both scenarios in this calculator assume those are already cleared.
Forgetting prepayment penalties on fixed-rate loans
RBI bans prepayment penalties only on floating-rate home loans to individuals. Fixed-rate loans, business loans, and LAP often charge 1–3% — factor this into the prepayment math before deciding.
Underestimating your own behavioural debt aversion
The math may favour SIP by ₹15 L over 15 years, but if loan EMIs make you anxious or you sleep better debt-free, that emotional return is real. Don't pick the optimal-on-paper option you cannot stick to behaviourally.
Pro Strategies for Loan vs SIP Decisions
A hybrid approach almost always beats a pure one. These moves let you capture math, behaviour, and tax efficiency at the same time.
Use the 50-30-20 surplus split
50% of surplus to SIP, 30% to prepayment, 20% to emergency fund top-up. You build wealth, you reduce debt, and you stay liquid — no single failure mode dominates.
Front-load prepayments in the first 5 loan years
Home loan amortisation is interest-heavy in the first 5–7 years. Every ₹1 L prepaid in year 2 saves ₹2.5–3 L of interest. After year 8, the marginal benefit drops sharply — at that point, SIP wins more often.
Keep at least ₹2 L of annual home loan interest
Don't fully prepay if you're losing the ₹2 L Section 24 deduction. At 30% slab, that's ₹60,000 of annual tax you give up. The break-even is paying down only the part of the loan whose interest exceeds the ₹2 L cap.
Re-evaluate after every 1% rate change
When your home loan rate moves 1% (RBI cycles, switches), re-run this calculator. A loan at 7.5% favours SIP more strongly; the same loan at 10% favours prepayment more strongly.
Build a 6-month emergency fund before either path
Both prepayment and SIP corpus can be tapped in a crisis, but at a cost (top-up loan or selling equity at a loss). A liquid 6-month emergency fund first lets you confidently allocate the rest of your surplus.
SIP vs Loan Prepayment FAQ
QShould I prepay my home loan or invest in SIP?
Compare your post-tax loan rate to your expected SIP return. Home loans at ~8.5% effectively cost ~5–6% after tax deduction. SIP at 12% usually wins long-term. For personal loans at 14%+, almost always prepay first.
QDoes the tax deduction on home loan interest matter?
Hugely. Up to ₹2 lakh/year interest is deductible under Section 24, plus ₹1.5 lakh principal under Section 80C. For someone in the 30% bracket, the effective home loan rate drops by ~25%.
QWhat about partial prepayment + partial SIP?
A 50-50 split is a great middle path. You get the psychological win of falling loan balance plus the compounding upside of SIP. Most advisors actually recommend this combo for home loans.
QWill my bank charge a prepayment penalty?
For floating-rate home loans to individuals, RBI prohibits prepayment penalties. Fixed-rate loans and corporate loans may have 1–3% penalty — check your sanction letter before prepaying.
QWhat if my SIP underperforms expectations?
That's the risk. SIP returns are expected, not guaranteed. Loan interest savings are guaranteed. Use a 10% expected SIP return for conservative planning, 12% for moderate, and never assume above 14% for long horizons.
QDoes this work for car loans too?
Yes — and the answer is almost always "prepay." Car loans charge 9–12% with no tax benefit, making prepayment a guaranteed return that beats most SIP scenarios after risk adjustment.
QHow does the new tax regime affect this decision?
Under the new regime, Section 24 and 80C deductions on home loans don't apply, so the effective home loan rate equals the headline rate. This shifts the math toward prepayment for new-regime taxpayers — re-run the calculator with the pre-tax rate.
QWhen I prepay, should I reduce EMI or shorten tenure?
Shorten the tenure — keep the EMI same. This is almost always financially superior: more of every future EMI goes to principal, total interest savings are 2–4x higher than reducing EMI for the same prepayment.
QIs it better to prepay early in the loan or later?
Always earlier. Home loan amortisation is interest-heavy in years 1–7. A ₹1 L prepayment in year 2 saves nearly ₹3 L of interest over the remaining tenure. The same prepayment in year 15 saves only about ₹40,000.
QHow do I treat loan-related insurance premiums?
Home loan insurance (HLPP) premiums are eligible under Section 80C up to the ₹1.5 L cap. If you prepay aggressively and the loan ends in 8 years instead of 18, you free up that 80C slot for ELSS SIPs or PPF — small but real benefit.
QWhat if I have both a home loan and a personal loan?
Always clear the personal loan first. At 14–18% APR, prepayment is a guaranteed risk-free return that no equity SIP can match on a risk-adjusted basis. Only after the personal loan is closed should you compare home loan vs SIP.
QShould I refinance the home loan instead of prepaying?
If your rate is over 100 bps higher than current market rates and you have 10+ years remaining, refinancing usually beats prepayment. The interest saved on the lower rate compounds over the remaining tenure — sometimes saving ₹5–15 L without using any surplus.
Related Calculators
Once you decide your split, fine-tune the rest of the plan with these
Basic SIP Calculator
Project the SIP-only path in detail with custom inputs and a clearer growth chart.
India Tax
Compute post-tax SIP returns under the new LTCG regime to refine your comparison.
Home Down Payment
Planning a future loan? Build the down payment via SIP and reduce the loan size first.