Is it worth paying off my loan early — or should I invest?
Same extra dollars, two futures. We simulate both month by month: throwing the extra at the loan (then investing everything after payoff) versus paying the minimum and investing the extra the whole time.
Your numbers
The verdict
Estimates for education only — not financial or investment advice. Investment returns are assumptions, not promises; loan interest saved is guaranteed, market returns are not.
The cleanest way to think about it
Paying down a loan is an investment with a guaranteed return equal to your interest rate. Every extra dollar against a 7.5% loan reliably "earns" 7.5% by not being charged. Investing the same dollar might earn more — historically, diversified stock investments have averaged more over long periods — but with no guarantee, and with years where it loses money instead.
So the comparison isn't really "which number is bigger." It's "is the extra expected return worth taking on risk?" A 2% loan versus an 8% expected return is an easy call. A 7.5% loan versus an 8% expected return is not — you'd be accepting real risk for a sliver of expected gain, and the guaranteed option quietly wins for most people in that zone.
What the simulation actually does
Path one sends your extra amount at the loan every month until it's gone, then invests the entire freed-up payment plus the extra for the remaining months. Path two pays only the minimum and invests the extra from day one. Both paths run to your original payoff date, and we compare where you stand: investments held minus any remaining debt. It's an apples-to-apples race between the same dollars.
Things the math can't decide for you
- Risk tolerance is real, not a character flaw. The person who sleeps better debt-free isn't wrong. Guaranteed peace has value that a spreadsheet can't price.
- Behavior beats optimization. The invest path only wins if the money actually gets invested every month. If it would leak into spending, the forced discipline of loan payments wins by default.
- Tax wrinkles exist. Retirement account matches are free money that beats both options; some loan interest is deductible; investment gains get taxed. Big balances deserve a conversation with a tax professional.
- Liquidity matters. Investments can be sold in an emergency. Extra principal payments cannot be un-paid. The invest path keeps options open, which is worth something even when returns tie.
Common questions
What return should I assume?
Long-run U.S. stock averages have been roughly 7–10% before inflation, but any given decade varies wildly. Try the calculator at a pessimistic number too — if investing only wins at optimistic returns, that's worth knowing.
Does this apply to mortgages?
The same logic applies, with two additions: mortgage rates are usually lower (favoring investing), and the balances are bigger, which magnifies whichever choice you make. Our 15-vs-30-year calculator covers a related version of this decision.
Can I split the difference?
Absolutely, and many people should. Half to the loan, half invested captures some of both benefits — guaranteed progress and market upside — and hedges against being wrong in either direction.