Loan Repayment vs. Investing: The Math Behind the Decision
When you have extra cash, the choice between paying off debt and investing comes down to interest rates. If your expected investment return exceeds your loan's interest rate, investing generates more wealth. If the loan rate is higher, paying it off first is the mathematically superior move.
This calculator compares the compound interest cost of keeping your loan vs. the compound return from investing the same amount. Keep in mind that investment returns are uncertain while interest savings are guaranteed — your personal risk tolerance matters too.
Frequently Asked Questions
When rates are within 1–2% of each other, consider after-tax returns, loan type (fixed vs. variable), and your psychological comfort with debt. Many financial planners suggest eliminating high-interest debt first regardless of expected returns.
No. This is a pre-tax comparison. For accuracy, input your after-tax expected investment return when comparing against your loan rate.