Have multiple loans? This what you need to look at before closing them
Taking loans now a days has become a necessity. Whether you want to buy a car or a home, loans are the only option which can help you with finances.
Getting a loan always comes with a price and that price is monthly EMIs. While you are taking multiple loans, what needs to keep in mind is that you need to pay EMIs too for each loan.
Now, the question is, which loan to close one? For instance, you have taken a car loan, a personal loan and a home loan, which one to close first?
First thing which you need to look is the rate of interest and the tenor of the loan before you decide to prepay and close a loan.
Navin Chandani , Chief Business Development Officer, Bankbazaar.com, said, "As a rule, it is a good idea to close unsecured loans such as personal loans or credit card dues as they come with a huge interest rate. Compared to a car loan or a home loan, a personal loan can be as much be as much as 5 percentage points higher, and credit card interest rates even more. So it makes sense to pay off these high-interest loans first."
In case of loans that have similar interest rates, calculate the actual benefits before you take a call.
For instance, prepaying your home loan in part or full the first five years can significantly bring down the total interest you will need to repay. At the same time, closing it towards the tail end of the tenor may not give you a significant amount of savings compared to closing or prepaying a newer car loan.
Plus, there are also tax benefits that come with home loans. So, calculate your savings in detail keeping all these factors in mind to get an accurate picture of how much you stand to save by closing your loan early. Chandani added.
So, if you are taking multiple loans, make sure you do look at various factors before closing it.