Loan vs invest
Got a bonus? Put it toward the loan, or invest it? Same cash flows either way, compared on what you own when the loan would have ended.
Investing the bonus ends $31.4K ahead
Measured 15 years from now, when the loan would end anyway. Prepaying clears it 3 yrs 6 mo early and saves $45.3K in interest; investing $20,000 at 12% grows to $109K.
Investing wins only above 9.16% a year after tax. Prepaying is a guaranteed 9%.
What you own in 15 years
Prepay: the loan ends 3 yrs 6 mo early, then the $1,521 EMI you no longer pay goes into a SIP. Invest: the bonus is invested now and the loan runs its full term.
Investing comes out ahead, if the return holds.
How this is calculated
Both routes cost you the same each month until the original end date: prepaying pays the EMI until the shorter loan ends, then puts the same amount into a SIP.
prepay = SIP of $1,521 for the months freed
The breakeven is close to the loan rate: prepaying earns exactly the loan rate, risk-free. Tax relief on loan interest and tax on investment gains change it, so compare after-tax numbers.