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RBI is likely to raise its main interest rate by 25 basis points on April 6, 2021.

This rise in interest rate could lead to higher interest payments on any outstanding loans.

Bank fixed deposit rates are also going up with the highest being 7% offered by many private and public sector banks, however, the taxation effect brings down the effective yield.

Many borrowers are contemplating redeeming their fixed deposits to repay their loans.

Personal financial analysts suggest considering when the loan was taken and whether it is tied to a short-term goal or an emergency fund before making any decisions.

It is also important to consider the terms and conditions of the fixed deposits, such as the penalties for early redemption or the minimum lock-in period.

Prepayment is not worthwhile if the loan is older.

One should also consider the potential tax implications for interest earned on fixed deposits.

It could be a good idea to pay off the loans if the post-tax returns are much less than the interest being paid on loans.

Click here to know more about loans Vs bank FDs. 

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