Is it better to overpay a loan or to invest?

Overpaying a loan is an investment with a guaranteed return equal to the loan's interest rate, with no risk and no Belka tax (Poland's 19% tax on capital gains). A loan at 7.5% with monthly compounding effectively gives 7.76% a year net. To beat that with a deposit, it would have to pay 9.58% gross. As long as the loan is more expensive than the return you can realistically get after tax, overpaying wins.

When does it pay to invest instead of overpaying a loan?

In three situations. First, when the loan is very cheap - at 2-3% interest practically any sensible investment will give you more. Second, when you invest through an IKE or IKZE account, where you pay no Belka tax, so 7% gross really is 7% net. Third - and above all - do not invest or overpay until you have an emergency fund covering 3-6 months of expenses.

How much do I really save by overpaying a loan?

With a PLN 400,000 loan at 7.5% over 25 years, a one-off overpayment of PLN 20,000 in the first year cuts total interest by PLN 87,529.07 and shortens the loan by 3 years. In this scenario every zloty of overpayment saves PLN 4.38 of interest. The condition: the overpayment must shorten the loan term, not lower the instalment.

What is the right order of financial priorities?

First, an emergency fund covering 3-6 months of expenses, kept in cash or a savings account. Second, paying off expensive debt: credit cards and payday loans at 15-20% interest and above. Only third, comparing mortgage overpayment with investing - and here the deciding factor is the loan's interest rate set against the after-tax return.

Strategy

Overpay your loan or invest? Let's do the maths honestly

This question is usually decided by emotion: some people cannot stand debt, others cannot stand missing an opportunity. Yet all it takes is comparing two numbers - both after tax. The result is often awkward for the investment industry.

8 min read · 14 July 2026 · Piotr Litwa, KredytPartner

The thesis everything starts from

Overpaying a loan is an investment

When you overpay a loan, you buy yourself a guaranteed return equal to that loan's interest rate. No risk. No commission. No Belka tax (Poland's 19% tax on capital gains). No management fee. No waiting for the market to pick up.

It is the only instrument on the market that gives a certain, high - and in the case of a credit card, absurdly high - return, and nobody will ever make an advert for it, because there is no commission to be earned on it.

The mechanism is simple. Every zloty you give back to the bank early is a zloty on which interest stops accruing - for the whole remaining term of the loan. You are not "earning" 7.5%. You are no longer losing 7.5%. For your wealth, that is exactly the same thing.

Three numbers that need a common denominator

Comparing a "7.5% loan" with a "5% deposit" and "7% shares" makes no sense until you work everything out after tax. The taxman takes 19% of capital gains (the Belka tax). Of the loan interest you save, it takes nothing, because that is not income.

net rate = gross rate × (1 - 0.19)

Deposit at 5% gross → 5% × 0.81 = 4.05% net
Shares at 7% gross → 7% × 0.81 = 5.67% net
Overpaying a 7.5% loan → 7.5% net (no tax)

And because loan interest accrues every month, the effective rate of an overpayment is even higher: (1 + 0.075/12)¹² - 1 = 7.76% a year.

Where you put PLN 1	Gross rate	Belka tax	Net rate	Risk
Overpaying a 7.5% loan	7.76% (effective)	0%	7.76%	none
Bank deposit	5.00%	-19%	4.05%	none (up to EUR 100k)
Shares / ETFs (long term)	7.00%	-19%	5.67%	high
Shares / ETFs through IKE or IKZE	7.00%	0%	7.00%	high + locked until age 60
Paying off an 18% credit card	19.56% (effective)	0%	19.56%	none

The "net rate" column applies the × 0.81 rule. It is exact for a deposit, where tax is deducted as you go. With shares and ETFs held for years, you only pay tax when you sell, so the real result is higher than 5.67% - we come back to this below, because this caveat works against our thesis. IKE and IKZE are Polish tax-advantaged retirement accounts.

A deposit would have to pay 9.58% gross to beat overpaying

Overpaying a 7.5% loan gives 7.76% net. To match it with a deposit, after the Belka tax you would need an interest rate of 7.76% ÷ 0.81 = 9.58% gross. Find a deposit like that. We could not.

And for a credit card at 18% (19.56% effective), the alternative deposit would have to pay 24.15% gross. Deposits like that do not exist and never will.

The same in zloty: PLN 20,000 over 10 years

You have PLN 20,000 and a mortgage at 7.5% that will be with you for a long time yet. What happens to that money over ten years, depending on where you put it? All amounts after tax:

Scenario	After 10 years	Net gain	Certainty of result
Deposit at 5% gross	PLN 29,747.53	PLN 9,747.53	guaranteed
Shares / ETFs at 7% gross	PLN 36,356.51	PLN 16,356.51	none
IKE / IKZE at 7% (no Belka tax)	PLN 40,193.23	PLN 20,193.23	none
Overpaying a 7.5% loan	PLN 42,241.29	PLN 22,241.29	guaranteed

Overpaying beats everything - including the tax-free IKE - and it is the only one of these options that does not require faith in anything. Of course, PLN 42,241.29 will not appear in your account: it is debt you no longer have. For your net worth, the difference is zero.

Honest caveat no. 1: the Belka tax can be kinder than we described

The "× 0.81" rule is exact for a deposit, because the taxman takes tax at every maturity - and in the following years only the reduced amount keeps earning. That is why a 5% deposit gives PLN 29,747.53 after 10 years, not PLN 30,481.55.

With shares and ETFs bought and held, you pay tax only when you sell. So the gross amount works for the whole period, which raises the real result: 7% gross is not 5.67% but 6.16% net a year over a 10-year horizon. Deferring tax is a benefit in itself - and the longer the horizon, the bigger it is.

Honest caveat no. 2: at 9%, shares win

We assumed 7% a year for shares - cautiously, close to the historical average of the broad market including the weak decades. But 7% is an average, not a promise; there have been periods of a dozen years or more with zero return.

If you assumed 9% gross, with deferred tax that comes to 8.08% net a year, or PLN 43,511.98 after ten years - and shares beat overpaying by PLN 1,270.69. The whole difference comes down to whether that 9% actually materialises. Nobody will guarantee it. Overpaying gives you 7.76% in writing, in your loan agreement.

In practice: what a single PLN 20,000 overpayment does

A PLN 400,000 mortgage, interest 7.5%, term 25 years, fixed instalment PLN 2,955.96. You make a one-off overpayment of PLN 20,000 after a year of repayments, choosing the shorter term option:

	No overpayment	With PLN 20,000 overpayment
Total interest	PLN 486,789.41	PLN 399,260.34
Repayment term	300 months	264 months
You save on interest	PLN 87,529.07 · loan shorter by 3 years

Every zloty of overpayment saves PLN 4.38 of interest

PLN 20,000 turned into PLN 87,529.07 of interest you never pay. A multiplier of 4.38× - because an overpayment in the first year cuts out interest for the whole remaining 22 years.

Critical condition: the overpayment must shorten the term, not lower the instalment. By default the bank will suggest lowering the instalment - because then it earns much more. Choose "shortening the loan term" and make sure that is what is written in your instruction.

When to invest instead of overpaying

1. When the loan is really cheap

Have an old loan at 2-3%? Do not overpay. The same PLN 20,000 on a loan at 2.5% is worth the equivalent of PLN 25,673.83 over 10 years (a gain of PLN 5,673.83) - less than an ordinary deposit at 5% gross. Cheap debt is an asset, not a problem. Especially when inflation eats away at its real value.

2. When you invest through an IKE or IKZE

No Belka tax changes the arithmetic. 7% gross on a regular brokerage account is 5.67% net; the same 7% in an IKE is a full 7% net. On top of that, an IKZE gives you a deduction from your taxable income in the year you pay in - a real, immediate return of around 12-32% of the payment, depending on your tax bracket.

The price: the money is locked (IKE until age 60, IKZE until 65), and contribution limits are annual. This is not the place for your emergency fund.

3. When you have no emergency fund - then do neither

Emergency fund first. No exceptions.

An overpaid zloty disappears. You cannot take it back out of the loan when your gearbox breaks or you lose your job. The bank will not return your overpayment - at most it will agree to a "payment holiday", if there happens to be such a scheme at the time.

Someone with no emergency fund who has overpaid their loan reaches for a payday loan at 200% APR at the first breakdown. That is how an "investment" returning 7.76% turns into a cost of several hundred per cent. It is the most common way a sensible financial decision ends in disaster.

The order of priorities. You cannot skip this list

Step 1

Emergency fund

3-6 months of expenses in a savings account or in retail government bonds. Liquid, available within 24 hours. Do not invest this money. It is not meant to be profitable - it is meant to be available.

Step 2

Expensive debt

Credit cards, payday loans, overdrafts - 15-20% and more. Paying off a card at 18% is a guaranteed 19.56% net. No investment in the world will beat that. Pay off the most expensive debt first.

Step 3

Overpaying or investing

Only here does the real dilemma begin. Compare the loan's interest rate with the real after-tax return. Expensive loan (6%+) → overpay. Cheap loan (2-3%) → invest.

A rule of thumb for when you cannot be bothered to calculate

Loan interest above 6% → overpay. A loan at 6% is effectively 6.17%, so a deposit would have to pay 7.61% gross, year after year, without a slip.
Interest below 4% → invest. A loan at 4% is effectively 4.07% - a deposit at 5.03% gross is enough to beat it.
Between 4% and 6% → a draw. The deciding factor is whether you sleep better without debt or with a portfolio. You can also split the amount in half and regret neither decision.

Two arguments you cannot put a number on - but which matter

For overpaying: you reduce your instalment or term, and so lower your exposure to losing your job. A loan paid off three years early means three years of life without your heaviest fixed commitment. For many people that is worth more than the difference in the table.

For investing: invested money stays liquid. You can take it out - with tax, maybe at a loss, but you can. You can never take an overpayment back out. That difference is real and does not go away, even though it is not in any formula.

Work it out yourself

Calculator

Loan overpayment calculator

Enter your loan amount, interest rate and overpayment. You will see how much interest you will not pay and how much shorter your loan gets - in both variants: shorter term versus lower instalment. The difference between them is often bigger than you expect.

Calculate your overpayment

Calculator

Compound interest calculator

The other side of the equation: check how much the same money would earn if invested - taking the Belka tax and inflation into account. Put the two numbers side by side and decide based on the result, not a hunch.

Calculate the investment

Inflation calculator

Check what your return is really worth after inflation.

Calculate the real rate

Loan repayment calculator

See the schedule and how much of your instalment goes on interest alone today.

See the schedule

Read on

Compound interest from scratch - why a 7.5% loan is really 7.76%, and why time matters more than the amount.
APR or interest rate? - before you work out whether to overpay, check what that loan really costs.
How a bank calculates your borrowing capacity - and why closing a credit card is the cheapest financial decision you can make today.

The calculations were made with the js/finance.js engine, assuming: fixed instalments, a fixed interest rate, monthly compounding and the 19% Belka tax charged on the gain at withdrawal. The 7% return on shares is a historical assumption, not a forecast - the real result may be significantly lower, including a loss of capital. This text is educational and does not constitute investment advice.