How to Use a Personal Loan for Investment and Maximise Returns in 2025

Naina, who was 28 years old and a marketing analyst, always played it safe—₹10,000 SIP monthly, a fixed deposit her dad demanded, and an instant no to loans. However, one night while sipping on cold coffee at a café in Mumbai, she heard something that flipped her perspective.

"Bhai, ₹10,00,000 ka personal loan uthaya, 12% interest pe. Stocks aur mutual funds me daala, ek saal me ₹14,00,000 ban gaya!"

Her mind started racing. Instead of waiting years to save up, could she borrow, invest smartly, and grow her wealth faster?

She crunched the numbers. A ₹10,00,000 personal loan with a 12% annual interest rate would result in ₹1,20,000 interest payments throughout the year. But if she invested ₹7,00,000 in strong stocks with an expected 18% return and ₹3,00,000 in a high-growth mutual fund, her projected earnings could be ₹1,80,000. 

Even after paying interest, she’d still make a net profit of ₹60,000.

"Matlab, paisa lagane ka paisa mil sakta hai?"

After completing her research, taking educated risks, and adhering to a good plan, Naina proceeded with her plan. In one year, her investments had breached ₹14,00,000. She not only cleared the loan but also earned a neat ₹1,00,000 in profit.

"Doston, paisa kamaane ke do tareeke hote hain—ya toh savings ka intezaar karo, ya phir Naina jaise smartly leverage karo." 

Want to know if it’s the right strategy for you? Let’s dive in.

Loan or Loot? Understanding Personal Loans Like a Pro

Personal loans are speedy and unsecured and require no collateral, but they come at a price. Ranging from 10% to 24%, the interest on them is perfect for emergencies or expenditures that have already been budgeted.

But can they be invested? The idea of borrowing at 12% and earning at 18% is alluring, but it isn't as easy as it appears.

Naina, for example, borrowed ₹10,00,000 at 12% interest, paying ₹1,20,000 in interest per year. She invested ₹7,00,000 in shares and ₹3,00,000 in mutual funds, hoping to get an 18% return. Her portfolio was worth ₹14,00,000, which earned her ₹1,80,000. Even after interest, she had a ₹60,000 net gain.

Sounds intelligent? Perhaps. 

Risky? Absolutely.

Let's dissect whether this strategy is for you.

Can You Turn a Loan into Lakhs?

Yes, but only with a clever plan. Banks don't keep tabs on what you do with a personal loan, so it's tempting to use the money to invest in something high-risk.

The golden rule here? Your returns must be higher than the interest on the loan.

Assume you borrow a ₹12,00,000 personal loan with 12% per annum interest. That's ₹1,44,000 you'll pay annually in interest. Your investments will need to return more than that if you wish to make money.

Profit Calculation:

• Total Gains: ₹2,16,000
• Less: Interest Paid: ₹1,44,000

• Net Profit: ₹72,000

   

A bullish market can make this strategy profitable, while a downturn can lead to owing money.

Thoughtful investment is accomplished through preparation, an understanding of the marketplace, and management of risk.

Investment Hacks: Make Your Loan Work For You

To leverage a loan effectively, you can invest in low-risk or high-growth possibilities.

Stock Market

• Investing in either sectoral funds, IPOs, or blue-chip stocks can generate a quick return of cash, but you are exposed to market volatility. Use a stop-loss plan.

• Example: Raj took ₹12,00,000 at 12% interest (₹1,44,000 per annum). He invested ₹8,00,000 in shares and ₹4,00,000 in an IPO with high growth. His portfolio increased to ₹14,50,000 in 10 months, earning him a profit of ₹2,50,000, and even after the interest payment, he had a net gain of ₹1,06,000.
  
  

Real Estate

• Investing in undervalued properties can be rewarding. Resell them at a higher price in the future or collect rent while paying back the loan.

• Example: Priya borrowed a ₹12,00,000 loan and purchased a troubled flat for ₹10,00,000. After slight renovations (₹2,00,000), she sold it for ₹16,00,000 within a year, earning a ₹4,00,000 profit after adjusting for the loan interest.

Business Expansion

• Business scaling through loan money can generate long-term returns if done well.

• Example: Aman utilised a ₹12,00,000 loan to start a cloud kitchen. After 12 months, his monthly revenues touched ₹2,00,000, and his profit margin was ₹40,000. His 12-month profit was ₹4,80,000, which is much more than his ₹1,44,000 loan interest.

High Risk, High Reward: Is It a Gamble or a Goldmine?

Borrowing to invest is a two-edged sword. If your investment pays off, you can double your money. But if it fails, you're left with the burden of paying the loan—plus interest—whether you earn anything or not.

Suppose you borrow ₹15,00,000 at 14% interest and invest it in various assets, hoping to earn an average rate of return of 20%. 

• If the market goes in your favour, your portfolio may increase to ₹18,00,000, and you would be left with a profit of ₹1,50,000 after paying interest of ₹2,10,000.
  
  

• But what happens if the market dips? A 15% decline would reduce your investment to ₹12,75,000, leaving you down by ₹2,25,000—plus the ₹2,10,000 interest you still owe. That's a total loss of ₹4,35,000.

   

The lesson? Borrowing to invest can be a goldmine or a money pit—depending on your strategy, market conditions, and risk management skills. Always have a good Plan B before jumping!

Debt Ka The End: Smart Consolidation Moves

Debt consolidation enables people to consolidate all their debt obligations into a new loan and repay the loan comfortably at a lower interest rate without causing any financial burden.

How Does It Work?

Suppose you have the following debt:

Now, if you borrow ₹7,00,000 as a personal loan at 14% for 3 years, your new EMI comes down greatly, and repaying becomes manageable.

Should You Consolidate?

1. Yes, if you have several high-interest loans and find it difficult to repay.
2. No, if you're going to accumulate more debt before paying off the existing one.

The Numbers Speak for Themselves

• Before Consolidation: A ₹7,00,000 loan at different interest rates (30% to 36%) with a total EMI of ₹53,000/month.

• After Consolidation: A ₹7,00,000 personal loan at 14% fixed interest with a lower EMI of ₹23,900/month.

• Total Savings: ₹29,100 per month and a systematic repayment plan for financial well-being.

A well-thought-out debt consolidation step can reduce your EMI by more than 50%, making repayment easy and affordable.

Gold Rush 2.0: Is Digital Gold the Future?

Gold has long been India's go-to investment—be it in the shape of jewellery, coins, or bars. However, in this digital age, alternatives such as Gold ETFs and Digital Gold are changing the way people invest.

Now, the million-dollar question: can you purchase gold through a personal loan and make it a worthwhile investment?

Gold prices have traditionally displayed consistent growth. Over the past five years, gold prices in India have increased by more than 80%. If this continues, an investment by taking a loan would be able to make reasonable returns.

Possible Strategy Utilising a ₹12,00,000 Loan

• Gold ETFs & Digital Gold Investment: ₹12,00,000
• Projected Gold Price Growth: 12% to 15% per annum

If gold prices go up by 15% in one year, the investment might be worth ₹13,80,000. After paying back ₹1,44,000 as loan interest, the profit could be ₹36,000.

But that's the risk—gold prices change, and a sudden fall can wipe out your profits. Gold does not give passive income like stocks, so loan repayment becomes difficult if the market becomes adverse.

Is digital gold then really the future, or just a speculative gamble? It all comes down to the market direction and your risk appetite.

Crypto & NFTs: The Wild Wild West of Investing

Cryptocurrencies and NFTs hold the promise of huge returns, but they are very volatile. Prices can fluctuate wildly in a matter of days, and government policies can rattle the market overnight. Borrowing money to invest in such assets is a risky bet—you might make huge gains or get into serious financial trouble.

Here's how the loan is:

• Loan Amount: ₹12,00,000
• Annual Interest Rate: 12%
• Total Interest to Be Paid in One Year: ₹1,44,000

With Bitcoin at the moment costing ₹71,52,187 per coin, putting in ₹12,00,000 would acquire you around 0.1678 BTC (a portion of one Bitcoin).

Bottom line? It's extremely risky to borrow money to invest in crypto. You may get lucky and make a fortune, but you may also find yourself poorer than when you began. Always take a minute to think twice before doing so!

Fixed Deposits & Bonds: Slow and Steady Wins the Race?

When it comes to safe investments, Fixed Deposits (FDs) and government bonds are usually the first preference. They provide stability, guaranteed returns, and no market risk. But here's the twist: their returns are typically lower than personal loan interest rates.

Let's analyse:

• FD Interest Rates: 6% to 8% per annum
• Government Bonds: 7% to 7.5% per annum
• Personal Loan Interest Rates: 10% to 24% per annum

If you borrow money personally at 12% and park it in an FD earning you 7%, you're missing out on 5% each year. That's a clean financial mismatch!

FDs and bonds are suitable for wealth retention but not best suited to expand borrowed funds. If you are borrowing to invest, you'll have to rely on higher-yielding options so that the numbers work.

Taxman Knocking? Know the Hidden Costs!

No Deductions

• Personal loan interest isn’t tax-deductible like home or education loans, offering no direct tax relief unless used for specific purposes.

• For example, if you take a ₹12,00,000 loan at 12% interest, you’ll pay ₹1,44,000 annually in interest, but none of this amount is eligible for tax deductions.

  
  Business Use

• If the loan is used for business expansion, the interest can be claimed as a business expense, reducing taxable income and lowering overall tax liability.

• Suppose you take a ₹12,00,000 loan for your business and pay ₹1,44,000 in annual interest; if your taxable income is ₹10,00,000, deducting the interest reduces it to ₹8,56,000, lowering your tax burden.

Real Estate Edge

• Loans used for buying or renovating property may qualify for tax deductions under Section 24(b) of the Income Tax Act, making them a potential tax-saving tool.

• If ₹12,00,000 is borrowed for home renovation at 12% interest, the ₹1,44,000 paid in interest could be deducted from taxable income, reducing overall tax liability.

Before borrowing, factor in both interest costs and tax implications to avoid hidden expenses!

Oops! Investment Blunders to Avoid at All Costs

Even the best-researched loan-backed investment can turn against you if you fall into these traps:

Overlooking Interest Expenses: Your earnings should be more than the interest on the loan, or else you will incur a loss.

Investing Without Research: Never invest blindly; analyse risks, market trends, and probable returns.

Speculative Investment: Do not gamble on stocks based on hype or cryptocurrencies without a solid financial foundation.

A good investment begins with strategic planning, not shortcuts—so plan before you borrow!

Conclusion

Using a personal loan for investment can be a make-or-break experience—either it's a gamble or a game-changer, depending on strategy, market performance, and risk tolerance. While Naina's experience is a good example of clever allocation and proper investing turning ₹12,00,000 into a profit, there's also a counterexample of loss for every success story.

Before leaping, evaluate risk, determine returns, and establish a backup. Borrowing to invest isn't for everyone, but if done properly, it has the potential to speed up wealth creation in 2025!

FAQs

• Is it legal to utilise a personal loan for investment?

Yes, banks don’t typically restrict their usage, but they might disapprove if utilised for speculative investments such as crypto.

• What kind of investment is most appropriate for a personal loan?

Real estate, blue-chip stocks, and debt consolidation are safer options than high-risk assets.

• Can I utilise a personal loan for stock market investments?

Although possible, it's not advisable because of changing market conditions. Make sure you have a repayment strategy.

• What if my investment didn't work?

You still have to repay the bank. That's why you need an alternative source of income to take care of EMIs.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?