Hey guys, just got my yearly bonus and I’m kinda confused, should I use it to prepay my loan (like home or car loan) or should I invest it somewhere for better returns? I read that sometimes loan prepayment beats investing, but not always. Anyone here actually done the math or has some experience with this? What’s the smarter move in 2025 clear debt early or grow money through investments?
Honestly, it depends on your loan type and the interest rate.
If your loan interest rate is higher than what you can realistically earn from safe investments (like 8–9%), then using your bonus for loan prepayment makes total sense, it’s basically a risk-free return equal to your loan rate.
But if your loan rate is relatively low (say 7% or less) and you have a stable emergency fund, you can consider investing the bonus instead. Long-term equity or index funds usually beat that rate, so your money can grow faster.
Also… remember prepaying early in the loan term saves more interest than doing it later because of how EMI interest works (declining balance method).
So,
- High-interest loan? → Prepay.
- Low-interest loan + long-term goal? → Invest.
- Not sure? → Do 50-50 — partial prepay + partial invest.
Smart money is about balancing peace of mind with future growth.