Which Loan Should You Pay Off First? Multi-Loan Payoff Planner
Most people pay off whichever loan feels most annoying. But the mathematically optimal order depends on effective after-tax rates, not headline rates. Enter your loans below to see the smartest payoff sequence for your tax bracket.
| # | Loan | Rate | Eff. Rate | Outstanding |
|---|---|---|---|---|
| 1 | 👤Personal Loan | 16.0% | 16.0% | ₹3.0L |
| 2 | 🏠Home Loan | 8.5% | 7.3% | ₹40.0L |
When each loan clears
Estimated based on ₹5,000/mo surplus allocated by priority.
Why Effective Rate Matters More Than Headline Rate
An 8.5% home loan and a 10% personal loan look similar on paper. But Section 24(b) of the Income Tax Act lets you deduct up to ₹2,00,000 of home loan interest from your taxable income each year. For someone in the 30% tax bracket, this effectively reduces the home loan cost to around 6.3% — making the personal loan almost 60% more expensive in real terms.
The effective rate is what you actually pay after accounting for all tax deductions. This calculator computes it automatically for each loan type based on your tax bracket, so you can see the true cost side by side.
Why Your Home Loan Should Almost Always Go Last
Home loans in India enjoy the most generous tax benefits of any debt instrument. Under Section 24(b), up to ₹2 lakh of interest is deductible. Under Section 80C, up to ₹1.5 lakh of principal repayment qualifies for deduction (shared with other 80C investments). For first-time buyers under PMAY, there's an additional ₹1.5 lakh under Section 80EEA.
These benefits stack up. A home loan at 8.5% PA can effectively cost as little as 5.5-6.5% depending on your tax bracket. Meanwhile, personal loans at 14-18% have zero tax benefit — every rupee of interest is a pure cost. The math clearly says: pay off your personal loan, car loan, and credit card debt before making extra home loan prepayments.
The exception? If you have already exhausted your Section 24(b) limit (because your interest exceeds ₹2 lakh), the additional interest has no tax benefit. In that case, the effective rate on the portion above ₹2 lakh equals the headline rate.
Education Loans and Section 80E: The Hidden Benefit
Education loans have a unique advantage under Section 80E — the entire interest amount is tax-deductible with no upper limit. This is different from home loans where the deduction is capped at ₹2 lakh. For a 30% bracket borrower, an education loan at 10.5% effectively costs only 7.35%.
The 80E deduction is available for 8 years from the year you start repaying. This makes education loans one of the cheapest forms of debt in real terms — often cheaper than home loans for borrowers with large education loan balances. Always factor this in before rushing to prepay an education loan.
Have multiple loans and want a personalised payoff strategy? Create your free debt-free plan →