He said he thought being completely debt-free after paying the loan off in three to four years after graduating would be good for him. “Sounds like the smartest thing to do, right? Wrong!” he said.

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The user stated that instead of clearing the loan in three to four years, he decided to pay it off in eight years.

Why you should not clear your loan quickly?

The Reddit user said that after graduating from IIM Bangalore, he “sat down, did the MBA-style financial analysis, and realised that rushing to repay was not the best move”.

• He said one of the biggest reasons he decided to not pay off the loan quickly was because of the associated tax benefits, “which most people overlook”. Under Section 80E of the Income Tax Act, taxpayers get a 100% tax deduction on interest paid for up to eight years.
  “If you clear your loan in two to three years, you lose ourt on this major saving. Why not use the full window and reduce taxable income?” he said.

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• For the second reason, the Reddit user quoted an example of a borrower with a ₹20 lakh loan. At 9% interest, the ₹20 lakh in principal amount does not stay the same. “By the time you start repaying, it could grow to ₹25-27 lakh due to accrued interest,” he said.
  He went on to add, that a large part of the interest segment of the loan is collected by the bank in the first few years. This is because the interest component of the EMI is much higher than the principal repayment component of the EMI in the first few years.
  “Instead of throwing all my money into quick repayment, I balanced it with savings and investments,” he said.

“I structured my repayment wisely - ensuring I get tax benefits, and maintain liquidity and investment smartly. And honestly? Best financial decision I made,” the user stated.

“Lesson learned: Being debt-free fast sounds good but being financially smart is better,” he concluded.

Netizens react: 'Good decision for him, not us'

Several Reddit users posed questions on the situation the IIM graduate explained to support his financial planning.

“I think under the New Tax Regime, Section 80E is no longer valid…We have to pay the taxes and the interest, nothing is getting deducted,” a user commented.

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“During his repayment tenure, the New Tax Regime was not there. So overall, a good decision for him, not for us, LOL,” another user replied.

A third user asked if there are any other benefits other than tax deductions “because those will not be applicable now”. A user responded by saying, “If the growth in your salary is more than interest rates, you are better off paying it as late as possible. But most just do it early for peace of mind.”

“First let me get admission in IIM Bangalore, I will pay off the loan even if it takes eight or 10 years,” a user joked.