Home Loan or Personal Loan

What shall I pay first? Home Loan or Personal Loan?


Demand for loans spikes up with the growing needs of people. In simple terms, taking a loan means borrowing money to meet your needs or requirements and, in the long run, being able to repay the same with a good amount of interest. While it often becomes a liability, it must be noted that taking a loan is not a bad thing as it acts as a bridge between your urgent need or requirement and your current inability to find it on your own. Some people also take multiple loans such as home loans, educational loans, personal loans, wedding loans, travel loans, and the like. It leads one to the question – which loan to pay first, a home loan or a personal loan? 

The answer is simple. It entirely depends on the loan’s purpose since every loan does the same thing – it gives you money to tide over your financial shortcomings. Paying off a loan reduces your financial liability as that means one has fewer financial commitments. However, when one takes several loans, the debt burden might seem too much. In such cases, one has to take a strategic approach to pay off the debt, and you can consider the following points –

1.Strategise and Prioritise 

A home loan is considered to be a “good loan” because it adds good value in the form of an asset. Taking a home loan is always a good idea as long as you can afford the EMIs because it creates an asset. Most importantly, the value of the real estate has been increasing in India for the last 50 years. This means that even if you decide to sell your house in the future, you’re only going to gain out of it. However, this isn’t the case when it comes to personal loans.

2. Repayment Plan

As a result of taking home loans and personal loans, you have too much debt to pay off, and the most important thing to do is to have a debt repayment plan. While formulating the debt repayment plan, one must consider the tenure, the interest rate of each loan, and so on.

3. Repay Higher Interest loans first 

Logically, one should pay off the loans with higher interest first. This means you should consider paying off your personal loans first. Secured loans such as home loans have a lower rate of interest than unsecured loans or personal loans; hence, you can keep on paying them. Making pre-payments whenever you have funds can eventually help you close them fast, allowing you to reduce your financial burdens.

4. Refinance Home Loans

Refinancing home loans can provide some financial relief. Your home loan might have a high-interest rate. In that case, you might be able to get a personal loan with a lower interest rate that will help you to pay off your loan(s) faster.

5. Tax Benefit 

Unlike personal loans, home loans offer tax benefits. Such tax benefits include tax deduction of up to Rs 1.5 lakh on the principal repayment under section 80C of the income tax Act and up to Rs 2 lakh on the interest paid under section 24 in a single financial year that makes home loans a tad bit convenient, isn’t it? This must be considered as these tax benefits reduce the income tax liability and make the repayment more affordable. Hence, one must always consider the tax benefits associated with the loan while closing them.  

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