Loan Prepayment Benefits: If you have taken an education loan or are planning to take it, then a question must have come to your mind, will it be right to prepare the loan before completion of studies or before EMI starts? From the perspective of RBI and tax rules, this decision is not as straightforward as it seems.

Bank education gives a moratorium period on the education loan, that is, during that time you do not fill EMI, and there is no financial pressure on your studies. But some people start repaying the loan within this period so that the burden of interest is reduced. Let us understand when this decision is beneficial and when it can prove to be harmful.

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How much and how money is saved from prepament? (Loan Prepayment Benefits)

Prepayment is the biggest advantage, saving interest. If you pay some amount of loan in the Moretorium period, then your principal amount decreases. Since interest is charged on this principal, in total you can save up to lakhs of rupees.

Apart from this, by repaying a premature loan, your credit score also strengthens, which makes it easier for the needs like home loan or personal loan in future.

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Tax exemption should not be lost somewhere! (Loan Prepayment Benefits)

But not every prepament is a profitable deal. Under section 80E on education loan, the government gives you tax deduction on interest, that is, the amount you pay, the amount you pay, the more money you pay with your taxable income.

If you repay the loan quickly, then this tax exemption will be available only for a short time, or can be completely eliminated. Therefore, if your income falls in the limit of tax, then you must take tax advice before preparation.

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It is not always better to pay a low interest loan (Loan Prepayment Benefits)

If you have taken the education loan at a low interest rate (eg less than 7%), and you have extra money, then the prepament may have a better option.

By investing in mutual funds or government bonds, you can earn a return of 10% or more annually, which can be more than the interest that survives.

That is, if you invest that money wisely by taking a loan at a low interest rate, then your money can increase faster than the loan EMI.

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So what should be done? (Loan Prepayment Benefits)

If you do not come to the tax slab and want to get rid of the loan as soon as possible, then the preparation of education loan is a great option for you.

But if you are taking tax benefit, or the loan interest rate is very low, then it is better to prepare, invest that money smartly and make your financial future strong.

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