Loan Repayment Strategy
Availing a loan is a practical way to meet financial goals — a personal loan for short-term needs and a home loan for long-term milestones like owning your home. But if you're repaying both at the same time, you need a clear strategy. The wrong order could cost you significantly more in interest over time. The right order can free up cash, reduce stress, and build long-term wealth.
Understanding Both Loans
Personal Loan
Unsecured · Short-term
Home Loan
Secured · Long-term
The Verdict: Close Your Personal Loan First
Personal loans are unsecured and carry significantly higher interest rates — often 2x to 3x the rate of a home loan. Every month you carry a personal loan costs you more. Direct your bonuses, increments, and any surplus income toward closing this debt as fast as possible, then redirect that freed-up EMI toward prepaying your home loan.
Why Personal Loans Should Go First
Personal loans are unsecured, meaning lenders take on more risk — and pass that cost on to you through higher interest rates. With rates typically between 12% and 24% per annum, every extra month you carry a personal loan is expensive. Key reasons to prioritise it:
- 01
Highest cost of borrowing
At 18–20% p.a., your personal loan interest can compound quickly. Closing it early eliminates this costly liability from your monthly obligations and immediately increases your monthly surplus.
- 02
No tax relief to offset the cost
Unlike a home loan, personal loans do not offer any Section 80C or Section 24(b) deductions. There is no government incentive to hold this debt — it's pure cost.
- 03
Shorter tenure, faster freedom
Personal loans typically run 1–5 years. A focused effort — using your bonus or a lump-sum — can close this loan quickly and remove an EMI obligation entirely from your budget.
Check Prepayment Charges First — Many lenders levy 1% to 5% on the outstanding personal loan amount if prepaid before tenure. Always calculate whether the interest savings exceed the prepayment fee before proceeding.
Home Loans: Why You Can Afford to Be Patient
Home loans come with structural advantages that make them far less urgent to close ahead of schedule. Once your personal loan is cleared, you can begin aggressively prepaying your home loan — but there's no need to rush both simultaneously.
- 01
Lower interest rates — significantly
Secured against your property, home loans attract rates between 8.35% and 10.5% p.a. — substantially lower than any unsecured loan. This makes holding the loan for a planned duration financially rational.
- 02
Substantial tax deductions available
Home loans offer dual tax benefits under Indian income tax law — helping reduce your effective interest burden further across the entire loan tenure.
- 03
No prepayment charges on floating rate loans
RBI guidelines prohibit banks from charging prepayment penalties on floating-rate home loans. This gives you complete flexibility to make part-payments whenever you have surplus funds.
Home Loan Tax Benefits (FY 2026–27)
Your Step-by-Step Repayment Strategy
- 01
Repay the highest-interest loan first
List all your active loans by interest rate. Your personal loan almost certainly tops this list. Direct every available rupee — bonuses, windfalls, salary increments — to closing it first.
- 02
Calculate total cost of borrowing for each loan
Don't compare only interest rates — factor in processing fees, insurance premiums, and GST on charges. The loan with the highest total borrowing cost should be retired earliest.
- 03
Minimise total interest payout by reducing tenure
Once you've closed your personal loan, redirect those freed EMIs to making part-prepayments on your home loan. Even small additional payments reduce the principal and shorten your tenure significantly.
- 04
Use an EMI calculator to model each scenario
Use the sidebar EMI tool to compare your current payment plan against an accelerated plan. Seeing the numbers clearly often reveals how much you can save with a focused strategy.
- 05
Consider a balance transfer if your home loan rate is high
If your current home loan interest rate is above 9%, a balance transfer to a lower-rate lender could save you lakhs over the remaining tenure. EasiLoan can compare current rates across 30+ lenders for you.
📊 Interest Rate Snapshot
| Loan Type | Rate Range | Risk |
|---|---|---|
| Personal Loan | 12–24% | High |
| Home Loan | 8.35–10.5% | Low |
| LAP | 9–13% | Medium |
✅ Repayment Checklist
- List all loans with interest rates
- Check personal loan prepayment charges
- Identify tax benefits on home loan
- Redirect bonus / increment to prepay
- Calculate total interest payout for each
- Consider home loan balance transfer
- Review strategy every 6 months
Want to Reduce Your Loan Burden Today?
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Compare Rates — It's FreeFrequently Asked Questions
Should I always repay my personal loan before my home loan?▾
In almost all cases, yes. Personal loans carry interest rates of 12–24% p.a. versus 8–10% for home loans. The higher cost makes it financially sensible to close the personal loan first — unless the prepayment charges on your personal loan make it unviable, in which case calculate the net savings before proceeding.
Can I get tax benefits on a personal loan in India?▾
Generally, no. Personal loans do not qualify for direct tax deductions under the Income Tax Act. Home loans, however, offer deductions under Section 80C (principal repayment up to ₹1.5 lakh) and Section 24(b) (interest up to ₹2 lakh) per financial year. First-time buyers may also claim an additional ₹1.5 lakh under Section 80EEA.
Are there prepayment charges on personal loans?▾
Yes, many lenders charge between 1% and 5% of the outstanding principal on personal loan prepayment. Always request a foreclosure statement from your lender and compare the prepayment fee against the interest you'd save before making a lump-sum payment.
Can I prepay my home loan without penalty?▾
Yes — RBI guidelines prohibit banks from charging prepayment fees on floating-rate home loans. If your home loan is on a fixed rate, a small prepayment charge may apply. Most borrowers today are on floating rates, so part-payments are completely free and can substantially reduce your outstanding balance and tenure.
What is the fastest way to become debt-free in India?▾
The avalanche method — targeting the highest-interest debt first — is the most mathematically efficient approach. Close your personal loan first, then redirect that EMI amount as an additional prepayment on your home loan each month. This compresses your home loan tenure dramatically without requiring any change in your overall monthly outgo.
Disclaimer: This article is published for general information and educational purposes only. The views expressed do not constitute financial or legal advice. Interest rates, tax provisions, and regulatory guidelines are subject to change. EasiLoan is a loan advisory and aggregator platform — we do not directly lend money. Please consult a qualified financial advisor before making any loan repayment decisions. All figures mentioned are indicative. RBI and Income Tax guidelines apply.