Paying off all the debts is amongst everyone’s top priority lists, yet doing as such successfully isn’t always possible. The ones with multiple loans and liabilities on their head may feel overwhelmed and burdened, which may often put them in a dilemma to think, “Which one should I repay first?”
Investing in a property and purchasing your first house is a huge financial decision. When you’re about to finalize that one dream house, you might start to wonder if you should opt for a traditional mortgage as an alternative to home financing. Sorting through mortgages and personal loans may not be a part of your goal, but it’s one way out when you want to buy a home.
There are diverse components and repayment strategies that are useful. When in a dilemma of which one to pay first, you need to consider your debt load, your risk appetite, and long-term goals. Paying off any debt in advance is always a safe choice, but every loan is taken for a different purpose, and deciding which one to tackle first can be a challenging task. While you’re making a choice of which loan to pay off first, you need to consider your overall current financial capacity and future financial situation. If the loan can be closed in the following years, there’s no point in taking pressure to close it as long as you are able to pay off the monthly installments regularly.
To comprehend the key differences between a home-loan and personal loan, home-loans are secured against the borrower’s home, so in case if the borrower defaults with their loan repayment, your home can be foreclosed. On the other hand, personal loans are typically unsecured, so if the borrower defaults with their payments, it will impact your credit, unlike your personal property being at risk. However, keeping an eye on your credit score is one of the most important factors in order to maintain consistency with your creditworthiness.
Hence, while repaying a debt, one needs to analyze the impact on credit score for availing any loans in near future. It is always recommended to first take care of the costliest loan of your share, not the fattest in terms of the EMI outflow, this is in order to take care of your interest cost burden.
The analysis mentioned above doesn’t apply only for a home loan or personal loan; it is likewise applicable for other debts you have taken. Prioritizing loan repayment in a systematic order basis their importance can ensure timely clearance of loans. Exiting a loan is a decision that should be taken basis merit-based reasoning, for example, Return on Investments, and the opportunity cost in contrast to the emotional reasoning (debt-free life).
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