I have accumulated sufficient corpus in aggressive hybrid funds to completely repay my five-year car loan, which is being serviced at nine per cent. Should I prepay my loan or continue to pay the EMIs and let the accumulated corpus grow further?
- Rahul
My general principle is that one should carry on with any loan that is for the purpose of buying an asset with a growing value. However, to buy any depreciating asset, one should never borrow money in the first place.
In this case, you might need to substitute your car with another in a few years' time, qualifying it as a depreciating asset. A loan taken for such an asset because of some emergency or need should be repaid as early as possible.
This article was originally published on March 18, 2019.
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