how to use your surplus money optimally – EzAnime.net

However, in the case of a vehicle loan, the ideal is to pay it off with extra money, since a car loan would have a higher interest rate than the home loan, without income tax benefits and, finally, A car is definitely a depreciating asset. whereas, in general, a home is an asset that is appreciated.

At a time when fixed income products offer lower returns and equity markets remain sparkling, people must use their surplus money to prepay long-term debts, such as outstanding credit cards, personal loans, and vehicle loans. and housing.

Experts suggest that if a person can earn after-tax returns higher than the current interest rate on a home loan, then they should invest in the excess money. They suggest that stock valuations are stretched and returns may be subdued and investors starting to invest in stocks now shouldn’t expect much higher returns. Before prepaying loans that help build a long-term asset, a person should ensure that they have adequate emergency funds to cover expenses for a year and adequate health and life insurance coverage. If it is not done, then in an emergency the person may have to take out a personal loan, which attracts a much higher rate than a home loan.

However, in the case of a vehicle loan, the ideal is to pay it off with extra money, since a car loan would have a higher interest rate than the home loan, without income tax benefits and, finally, A car is definitely a depreciating asset. whereas, in general, a home is an asset that is appreciated.

Prepaid Home Loan
Since investments in stocks have yielded higher returns, you can make a profit and prepay a portion of your home loan. Experts say that the ideal strategy in this bull market is to stay invested with occasional partial profit reserves and move some profits to fixed income or to the prepayment of loans that have higher interest rates. Since interest rates on home loans have fallen in the last two years, it is ideal to pay in advance, as an increase in the interest rate will put an additional burden on the borrower.

Experts suggest that if people are unable to make a balloon payment, they can opt for a systematic withdrawal plan on their mutual fund investments and use the monthly income to increase EMI. The EMI increase can be requested at any time and there are no fees for such a request. Also, for a salaried employee, increasing EMI helps as the borrower progresses in his career and higher repayment packages that will translate into higher disposable income.

In a home loan, the interest portion is charged up front. Therefore, a borrower must begin to prepay an amount from the first year of the loan. Paying in advance later doesn’t save much in terms of paying interest. Banks do not charge any prepayment penalties on floating loans and banks will accept prepayment if made with their own funds and will request a six-month bank statement as proof.

Before you prepay a home loan, you should evaluate the tax benefits of the home loan. The Income Tax Law provides a tax deduction of interest in case of self-employed up to Rs 2 lakh and up to Rs 1.5 lakh in repayment of principal under Section 80C.

Clear credit card fees
Any excess money must be used to pay the credit card fees. Renewing credit by paying the minimum amount owed is not a good idea, since banks charge an interest rate of between 35% and 45% per year, depending on spending patterns, recovery of investment and use of each one. . In fact, continuous credit is much more expensive than even a personal loan, which can be used between 13% and 15% per year.

If you have multiple credit cards, you must first pay the fees on the card that charges the highest interest rate. This will reduce the person’s interest expense, as unpaid installments on cards with a higher interest rate will accrue a greater amount of interest. So once the bill from the credit card with the highest interest rate is paid with the excess money, then you should switch to the card with the lowest outstanding balance.

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