If you have more than one loan than you should know which loan you should pay off first, here is guide for how to Priorities Your Loan Payment. As the time changes, living style also getting changed. Now you can not live without taking loan.
Priorities Your Loan Payment – Which Loan to Pay Off First?
If you want to buy home than you have to take Home loan, if you want to buy Two wheeler or four wheeler, you need to take Auto Loan (because of high rates and low salary). Credit card also requires to shop everything you looking for. So, Loan is quite necessary, also help you to get your desire things before time.
But the other end of sward is, that Loans do take high interest rates. Like each loan will ask you for minimum 10-20% interest rate (depends on the nature of loan). But to save yourself from higher interest rates, here is a way by which you can priorities your loan and save some money (and invest more).
We advise you to pay your unsecured loan first and secure loan later on. Also, Home Loan and Education loan are exempted under Tax benefit, so, you can give less priority to home loan and education loan. Secured loan do given against collateral (if you don’t pay your loan, they can claim your property Home or Auto back). But in Unsecured loan, there is no collateral, and the reason they are quite costly (high interest rate).
Priority #1 :- Credit Card Loan :- The biggest reason to give 1st priority to credit card loan is, Credit card company will charge you 35-40% of interest of credit card due, that’s insane. So, always pay your credit card bill on time, And if you are not able to pay, convert it in Personal Loan (which will be charged at 15%). Save Your Money.
Priority #2 :- Personal Loan :- One more Unsecured loan, which may charge you at 18-25% of interest rate. All the schemes which provide EMI by scratching Credit card come under Personal Loan. Advised NOT to take personal loan, if possible. If you have one, pay off ASAP.
Priority #3 :- Car/Bike Auto Loan :- Auto Loan with no benefits will charge you almost 8-10% interest rate. Gold Loan, loan against Provided fund, Insurance Policy also will be charged at same rate and with NO Tax benefit.
Priority #4 :- Student Loan/Education Loan :- Yes, Education loan are 2nd highest loan with 14-16% of interest rate but you will get tax benefit on interest rate of student loan. Education fees of Higher education are not possible to pay without cash,nowadays. So, Don’t hurry for repayment, you will get tax benefit. 🙂
How strange world, you get Car/Bike at 8% loan and Poor students need to pay 14% interest for higher studies :).
Priority #5 :- Home Loan :- Home loan which is charged normally at 12%, on which you will get tax benefit on both the principal as well as interest paid.So, it should be last on your priority list of loan payment. And before Repaying Home loan, do check the Bank Wise Pre-payment Charges on Home Loan.
Also read :- 5 Things to Check Before Closing Home Loan
Before paying loan off, look for any good investment plan which can earn more money for you than interest you pay.
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