Debt2 min read · Updated October 21, 2026
Pay off the loan or invest? A US comparison with numbers
How to decide between paying extra on a loan and investing in the US, with a $20,000 example, taxes on gains, and the break-even return to beat.
The core idea
Paying extra on a loan earns your loan rate, with no risk. Investing may earn more, but it is not guaranteed and gains may be taxed. So the question is whether investing beats your loan rate by enough to be worth the risk.
A worked example
$20,000 over 10 years. Paying a 6.5% loan equals a sure 6.5% a year, about $37,543. Investing at 7% with 15% tax on gains is about $35,648. Overpaying wins by about $1,900, with no risk.
A simple rule
If the loan costs more than about 7%, pay it. If it costs under about 4%, investing usually wins over time. In between, split the money.
Check before you overpay
Make sure there is no prepayment penalty, keep a cash cushion, and capture any 401(k) employer match first, because that match is an instant return.
Common questions
Is paying off a loan a good return?
Yes. It is a sure return equal to your loan rate, with no market risk.
Can I do both?
Yes. Many people split the money, keeping a cash cushion first.
Does the investment return include tax?
Compare after tax. The calculator lets you enter a tax rate on gains.