Should you prepay loan or start investing?
debt with the funds?
It’s essential for Vansh Ahuja to keep up with his student loan payments, ensuring that he meets at least the monthly minimum due to maintain a good credit history for future loan eligibility. Automating these EMI payments and treating them as a mandatory expense will help him stay consistent.
He should also consider setting up an emergency fund, which can act as a backup for EMI payments in case of an unexpected job loss. If he doesn’t already have one, he could consider allocating the Rs.4.5 lakh bonus for setting this up.
Once an emergency fund is in place, he can consider prepaying the loan. He should start by understanding the lender’s prepayment norms, particularly penalties, if any. It’s also important to note that under the old tax regime, the interest paid on an education loan is eligible for a deduction under Section 80E of the Income-tax Act, a benefit he would forfeit if he opts for prepayment.
Ahuja should weigh the impact of losing this tax benefit and any prepayment penalties against the potential savings in interest, comparing the old and new tax regimes before making a decision.
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