Which loan should I pay off first?

Two orders are commonly used. Highest interest rate first costs the least in total interest. Smallest balance first clears individual loans sooner, which some people find easier to sustain. On most real sets of loans the difference in total interest is smaller than people expect — and either order beats paying every loan at its minimum.

The two orders, and what each optimises

Paying the highest-rate loan first minimises total interest, because every extra rupee goes where money is most expensive. This is the order that wins on pure arithmetic, and on a mix that includes a card balance or a personal loan alongside a home loan, it can win by a wide margin.

Paying the smallest balance first closes accounts sooner. It costs a little more in interest, and its argument is behavioural rather than mathematical: a loan that disappears is visible progress, and plans people keep going with beat plans they abandon. Muktify computes both and shows the gap on your own loans, so the choice is made with the cost in front of you.

The freed EMI is the engine

What makes either order work is not the order itself but what happens when a loan clears. The payment that used to service it does not disappear — it rolls onto the next loan, so each closure makes the following one faster. This is why a payoff plan accelerates rather than running at a steady pace.

It is also why a single loan viewed alone always shows a later clear date than the same loan inside a plan. If you are comparing figures, make sure both come from the same calendar; Muktify runs one simulation across every open loan for exactly this reason.

Pool = every EMI + anything extra → priority loan, then the next

What the interest rate does not tell you

The headline rate is not always the real cost. Interest on a home loan can carry a tax benefit under the old regime, which lowers its effective rate — while the same loan under the new regime for a self-occupied property carries none. Two people with identical loans can therefore face genuinely different answers.

Prepayment terms matter too. Floating-rate home loans to individuals generally carry no prepayment penalty in India, while some fixed-rate and personal loans do, and a charge can undo the saving on a small prepayment. Both belong in the comparison before the order does.

Clearing debt is only one use of the money

Money used to prepay is money not doing something else, and the honest comparison is the loan's effective rate against the return you assume elsewhere. Prepaying saves interest with certainty; the alternative offers a return that is uncertain. Which matters more is a judgement about your own tolerance, and Muktify shows both sides rather than picking.

One thing does usually come first in the ordered plan: enough cash to absorb a setback. Without it, an ordinary emergency turns into new borrowing at a worse rate than whatever was just cleared, which undoes the work.

See all of this on your own numbers

Muktify works out how long your money would last without a paycheck, and what a big purchase really costs you — free, in about two minutes, with no bank login.