07 JULY, 2022

If you have a home loan and other small loans like a car loan or personal loan, you may be wondering which one to pay off first. The first debt that is typically paid off is the one with the highest interest rate, followed by the next highest interest rate, and so on. However, many people still don't realise that there can be benefits to settling your home loan after you have cleared off the other debts.

Reasons why you should always settle your home loan last

If you find yourself with many loans and finding it difficult to manage them all, it’s best to pay off your other loans first and home loan last. Here’s why:

1. Tax benefits

The interest that you pay on your home loan is eligible for a deduction of up to Rs 2 lakhs per year under Section 24 of the Income Tax Act. Additionally, the principal amount repaid on a home loan is eligible for a deduction of up to Rs 1.5 lakhs per year under Section 80C of the Income Tax Act. As a result, home loans can help taxpayers to save money on their taxes.

2. Home loan interest rate is low

The home loan interest rate is generally lower than the interest rate on other loans such as personal loans or credit cards. This is because home loans are secured against property and thus they carry less risk for lenders. Since personal loans and credit cards have high interest rates, experts advise to settle these loans first. This makes repaying a home loan more affordable in the long run.

Moreover, while you plan to repay the other loans, you can check the EMIs through the home loan EMI calculator and plan your finances accordingly. A home loan calculator instantly discerns the EMI for you after you enter the necessary details. This helps keep a track of your daily expenses and upcoming fixed expenditures.

3. Manage sudden financial crisis

Home loan repayment terms are usually much longer than those of other loans, which means you will have more time to repay it. This can be helpful if you experience financial difficulties at any point during the repayment period. There could be many unexpected expenses that may crop up suddenly such as a medical emergency, plans for further studies, etc. In such situations, you could check your top-up home loan eligibility and apply for one with your lender to meet such expenses. Compared to other loans, getting a top-up loan is a convenient way to cover such unforeseen expenses.


These are some of the reasons why it makes sense to settle your home loan last if you have any other small loans. By doing so, you can save on interest payments on other debts, reduce your taxable income, and get a top-up loan if needed. Following the above-mentioned pointers could help you plan your finances in a better manner.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.