The Pros and Cons of Taking a Personal Loan for Crypto Investment

Summary Points:
 

1. Taking a personal loan for crypto can bring big gains but also big losses because prices keep changing.
    
2. Fixed monthly payments and sudden price drops can cause heavy debt, money stress, and even loss of the assets you pledged.
    
3. Experts advise using only extra money for crypto investments. Borrowing through loans is risky because crypto prices change quickly, and fixed repayments can cause heavy losses and stress.

Bonus Point: In the fourth quarter of FY2023–24, personal loan advances in India reached USD 7.59 billion, surpassing other categories like education loans, auto loans, healthcare financing, and gold loans.

A personal loan is an unsecured loan where banks or fintech lenders give money for personal or investment use.

Let’s understand it with the help of an example:

Let’s say Rohit Mehra, a 32-year-old software engineer in Delhi, borrowed ₹5,00,000 at 12% annual interest in early 2021. He invested this loan in Bitcoin, which rose by 30% in six months. His investment grew to ₹6,50,000, while his monthly EMI was ₹11,112. 

But in the following year, Bitcoin dropped by 40%. His portfolio value came down to ₹3,90,000, but his EMIs continued at the same amount. This shows both the upside and the risk when loans are used for volatile assets like crypto.

In this blog, we will explore the meaning of taking a personal loan for crypto, its advantages, disadvantages, recent fintech data, and real-life examples to give you a full picture.

What is a Personal Loan for Crypto Investment?

A personal loan for crypto investment means borrowing money from banks, NBFCs, or fintech apps and then using that borrowed amount to buy cryptocurrencies like Bitcoin, Ethereum, or other tokens. Normally, personal loans are taken for home renovation, weddings, or travel. 

But with the rise of digital assets, some people are diverting these loans into crypto.

Let’s understand it with the help of an example:

Ankit Sharma, 27, from Jaipur, took a personal loan of ₹3,00,000 at an interest rate of 11% per year in 2022. Instead of using it for household expenses, he invested in Ethereum. Within 8 months, Ethereum grew by 40%, and Ankit’s investment value touched ₹4,20,000. 

But since crypto prices fluctuate, there was always a chance that the value could also fall below his borrowed amount.

To understand how a normal personal loan differs from one used for crypto investment, here is a simple comparison.

Normal Personal Loan vs Personal Loan for Crypto Investment
 

The table shows that even though the loan terms stay the same, the risk becomes much higher when the money is invested in crypto instead of something with a fixed value.

The Pros of Taking a Personal Loan for Crypto Investment:

Taking a personal loan for crypto investment may sound risky, but there are some clear advantages when the market performs well. These advantages often attract investors who are looking for higher and quicker returns.

Let’s understand it with the help of an example:

Priya Sharma, a 29-year-old marketing professional from Mumbai, borrowed ₹2,00,000 at 10% interest in 2020. She invested the entire loan in Ethereum. Within 6 months, the price of Ethereum doubled. Priya’s investment became ₹4,00,000, while her loan liability remained fixed. This shows how the right timing can give huge profits.

Here are the main benefits that people see when using loans for crypto:

One of the key reasons people consider taking loans to invest in crypto is the possibility of high profits.

1. High Return Potential: Crypto prices can rise rapidly, giving returns much higher than traditional investments.
    
2. Quick Access to Money: Fintech apps and NBFCs often approve loans within 24 hours, making funds available instantly.
    
3. Portfolio Diversification: Adding crypto to investments can balance against inflation or other risks.
    
4. Hedge Against Currency Weakness: Digital currencies often grow in value when fiat currencies lose purchasing power.
    

This means a well-timed investment could potentially offer returns far greater than most traditional assets.

To understand the benefits more clearly, let’s look at how each advantage can impact the borrower with the help of the table:

The table shows that the advantages can be powerful, but they all depend on timing and market conditions.

The Cons of Taking a Personal Loan for Crypto Investment:

While the benefits sound promising, the disadvantages of mixing loans with crypto are often much bigger. This is because crypto is highly volatile, and repayment obligations remain fixed regardless of profits or losses.

Let’s understand it with the help of an example:

Let’s say Amit Khurana, a 35-year-old businessman from Pune, borrowed ₹3,00,000 at 13% interest in 2022 to invest in crypto. Unfortunately, that year the crypto market crashed by almost 50%. 
 

His portfolio value fell to ₹1,50,000, but his EMI of ₹6,842 per month still had to be paid. Within a few months, his financial pressure doubled, and he had to take another small loan to manage his expenses.

Let us now look at the major disadvantages of using personal loans for crypto investment:

• High Volatility: Crypto prices can fall 30–50% in a few weeks, wiping out invested capital.
   
  • Repayment Pressure: Loan EMIs remain fixed even if the investment value drops.
     
• Debt Trap Risk: Losses may push borrowers to take fresh loans, creating more debt.
   
• Regulation Issues: In India, the RBI has warned against crypto lending, leaving investors with no legal support if things go wrong.

This means your entire loan-funded investment could lose value quickly, leaving you with a loss and a repayment burden.

To understand the cons more clearly, let’s look at how these risks can affect an investor’s financial position:
 

The table highlights that risks are often heavier than benefits, making personal loans for crypto a dangerous strategy for most investors.

Recent News and Statistics:

The world of crypto and personal loans is changing fast. Fintech lending in India has grown rapidly, and more people are experimenting with investing borrowed money in digital assets. But regulators such as the RBI and SEBI have warned investors about the risks of such practices.

According to The Economics Times, fintech-based personal loan disbursement in India touched ₹50,000 crore in FY2024, compared to ₹22,000 crore in FY2021.

Let’s understand it with the help of an example:

Let’s say Sandeep Nair, 31, from Bengaluru, borrowed ₹4,00,000 in 2023 when Bitcoin was rallying. Within three months, his portfolio grew to ₹5,20,000. But after the 20% correction in early 2024, his portfolio dropped back to ₹4,10,000, only slightly above his borrowed amount, while his EMI obligations stayed constant.

To get a clearer view of how the numbers look in recent years, here is a table of loan and crypto trends.
 

Recent Statistics: Personal Loan and Crypto Trends
 

The data shows how crypto returns fluctuate sharply, while loan rates remain relatively steady. This gap between volatility and fixed repayment makes the strategy very risky.

Conclusion:

Taking a personal loan for crypto might look tempting, but it’s very risky. Prices can rise fast but also crash suddenly, leaving you with fixed EMIs and growing debt. Examples and data show this often ends badly. If you want to invest, use only extra money. Stay careful, crypto rewards patience, not pressure.

FAQs:

Q1: Can I withdraw a crypto loan?

Centralised lenders (CeFi) can send USD or stablecoins, while DeFi protocols release funds directly to your wallet.

Q2: How do I repay a crypto loan?

You can repay anytime, fully or partially. Interest keeps adding until cleared, so track your collateral to avoid liquidation.

Q3: What happens if you can’t pay back a crypto loan?

The platform will liquidate your collateral to recover the loan and interest, which may also trigger capital gains tax.

Q4: Are crypto loans taxable?

Borrowing itself isn’t taxable as ownership isn’t transferred, but liquidation of collateral triggers a taxable event.

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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?