Using Loan to Invest - Paying Monthly Installments with Monthly Income
The best strategy? Skip the loan. Find a way to invest for a low starting amount via a retirement account (such as a 401K or IRA in the United States) or non-retirement account. Use this money to buy individual stocks or funds. Every month put money from your regular income into this investment account. Then buy more stocks or sell if the conditions change based on what the market is doing, not to meet a loan payment. This helps you because if the price fluctuates you will buy more shares if the price is down; and you will buy fewer shares when the price is up. It also allows you to skip worrying about how to repay the loan. It also means that you not have to pull more money out of savings to make the final loan payments if it doesn't make as much money as you plan. Regarding your math. This is a better understanding of the money flow than the earlier question. "I hope I'm misunderstanding your plan... you want to invest in a way that will make SO MUCH that you pay back all of the loan payments with investment gains? Like the answer I gave on the preceding question, and like @littleadv's comment/mhoran's answers... don't do this. No good will come of it.  This strategy requires higher returns, but does not necessarily give you a better return.   But because you asked the question again, let me specify what you're missing... I do think that learning is a good thing. It boils down to two very significant problems that you haven't addressed:  (1) Where are you getting your monthly ""income"" from?  (2) Realistic vs. Daydreaming--How big do any gains have to be and does that exist in the real world in a way that you can capture?  In a nutshell, if my answer to the last question showed that it's crazy to invest and pay back out of your capital and income... since you're trying to keep your capital and only pay back with monthly gains, this one will require even higher and thus more unrealistic gains.  The model you're implying:  If that's what you mean with this model, (which I think you do), then here are my two very key questions again: How are you getting your monthly income? Financial investments (i.e. stocks or bonds) will have two components of value. One component of value is the stream of payments, such as a monthly dividend from stocks that pay those, or the interest payment from a bond. The other is the ability to resell a security to another investor, receiving back your capital.  So... you either have to find Bonds//Dividend stocks that pay >52% returns tax-free each year, and pay this loan off with the payments. (Or higher returns to cover taxes, but these kinds of investments do not exist for you.)  OR you can try to invest in something, pray that it goes up ≥4.323% per month and so that you can sell it, pay back your loan payment with the proceeds, and use the capital to buy your next investment... that will go up 4.323% per month, to turn and sell it again.  The pros that do model this type of speculation go into much more depth than you are capable of. They build models that incorporate probabilities for rates of return based on historical data. They have better information, and have specialized in calculating this all out. They even have access to better investment opportunities (like pre-IPO Twitter or private notes). You just won't find the opportunities to make this happen, each month, for 24 months. (Again, you won't find them. They do not exist for you in as an investor in securities) Realistic vs. Daydreaming So... clearly I hope that by now I have convinced you that these would be the required returns. They simply aren't available to you. If they were, you would still run into obstacles with converting 'book' returns into physical money that you could repay the loans with, and then continuing that growth.  And while I appreciate the notion that 'if I could just make the payments each month, I'd have $10,000 after 24 months!' I guarantee you that you'll be better off finding another way to target that same investment.  Along the lines of what mhoran said, if you aim for a basic 401K or other similar investment account and target it into the S&P500, you might see returns of anywhere from -25% to +25% over the next 24 months... but if things went like they tend to average for the S&P500, it's more like ~7% annually. Check out a ""savings target calculator"" like this one from Bankrate.com and put in the numbers... if you can save about $390 a month you'll be at $10K in 24 months. It's not as fun as the other, but you can actually expect to achieve that.  You will not find consistent >50% returns on your money annually." Here are my re-run figures.  Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan.  It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission.  It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount.    Ref. r, logarithmic return I think we are mixing this up. If you invest using loan, and are paying the loan out of your pocket and leaving the loan in investment, then there is no way you are making more money. Had you directly invested the same money in market instead of EMI, you would end up gaining more. Take a Loan of 100000, Year Int say 5.00%. Total Interest Paid in 2 Yrs comes out to 5291   The Rate of Interest your investments need to make is 2.58%. Sounds to good to be true. But yes when you look at it other way round, this is right.  Now if you can indeed make 2.58% from your investments, check what happens if you were to invest the EMI directly and don't take the loan.  You make 7937
Inflation is not applicable in the said example. You are better off paying 300 every month as the balance when invested will return you income. Typically the power of capitalized interest would work in your favor and you could carry the loan paying it down while investing the original sum which would earn interest. BUT you aren't going to get any sort of return to compare with 15% so pay off that loan immediately. Also contrary to popular belief (and reiterated here) paying off incurred balance on your credit card every month is responsible use of credit but it will not do much for your credit score. The score ultimately means your ability to pay your bills and most importantly your willingness to pay interest, i.e. revolving the borrowed money. At least in the consumer market where the product they want you to buy is paying monthly interest charges. First off, this is a post for /r/personalfinance.   Second off, if you want to think of this like an accountant/financier, those are the bank's 10233 dollars, not your's, and you are paying them 6% to keep that money. If you are confident that you are going to make more than 6% interest on any investments you make with that money, it makes sense to do so, although your return will be 6% less in reality. You also assume the risk of losing money on the investment and not having enough money to repay your loans.             tl;dr Pay off the loan. There is the underpayment penalty, and of course the general risk of any balloon-style loan. While you think that you have enough self-discipline, you never know what may happen that may prevent you from having enough cash at hands to pay the accumulated tax at the end of the year. If you try to do more risky investments (trying to maximize the opportunity) you may lose some of the money, or have some other kind of emergency that may preempt the tax payment. First problem I see is you'd be getting that rent per month, so you get 12% a year before taxes and related expenses. Loans will allow you to leverage your capital, so you can cover the mortgage payments with rent and still have money left over. Do this a couple times, and you can make serious money.   Obviously, I don't know the specifics but this is just my viewpoint of RE in general. There could potentially be many downfalls. Essentially, what you're describing is a leveraged investment.  As others noted, the question is how confident you can be that (a) the returns on the investment will exceed what you're paying in interest, and (b) that if you lose the bet you'll still be able to pay off the loan without severely injuring yourself.  I did essentially this when I bought my house, taking out a larger loan than necessary and leaving more money in my investments, which had been returning more than the mortgage's interest rate. I then got indecently lucky during the recession and was able to refinance down to under 4%, which I am very certain my investment will beat. I actually considered lengthening the term of the loan for that reason, or borrowing a bit more, but decided not to double down on the bet; that was my own risk-comfort threshold. Know exactly what your risks are, including secondary effects of these risks. Run the numbers to see what the likely return is. Decide whether you like the odds enough to go for it. If you get your income in the currency you have the new loan in, there is no exchange risk for the future. Assuming that you are able to get and serve that loan, it reduces your cost, so go for it. Yes, if the currency exchange rate changes the right way over the next years, you could have made a better deal - but consider it could also go the other way. If you really want to play this game, do it separately, by trading calls/puts on the currency exchange rate. See it as a separate and decoupled investment option. The reason it's broken out is very specific: this is showing you how much interest accrued during the month.  It is the only place that's shown, typically. Each month's (minimum) payment is the sum of [the interest accrued during that month] and [some principal], say M=I+P, and B is your total loan balance.  That I is fixed at the amount of interest that accrued that month - you always must pay off the accrued interest.  It changes each month as some of the principal is reduced; if you have a 3% daily interest rate, you owe (0.03*B*31) approximately (plus a bit as the interest on the interest accrues) each month (or *30 or *28).  Since B is going down constantly as principal is paid off, I is also going down. The P is most commonly calculated based on an amortization table, such that you have a fixed payment amount each month and pay the loan off after a certain period of time.  That's why P changes each month - because it's easier for people to have a constant monthly payment M, than to have a fixed P and variable I for a variable M. As such, it's important to show you the I amount, both so you can verify that the loan is being correctly charged/paid, and for your tax purposes. He would spend it into the economy that is accepting his dollars. As an example, the apple maker might borrow $100 with $10 interest for the deer shank, then later on get the $100 back from the deer hunter in trade for 150 apples, and then pay this $100 to the banker. Now the apple maker still needs $10 to pay off his loan. The banker says he'll trade his $10 in interest profit for 15 apples, now the apple maker can resolve his debt without further borrowing.  The difference between spending interest earnings and issuing a loan is that when the banker is spending, they are getting something for their own use, when they are issuing the loan, they aren't getting anything but the promise to repay that loan. An extra payment on a loan is, broadly speaking, a known-return, risk-free investment. (That the return on the investment is in reduced costs going forward instead of increased revenue is basically immaterial, assuming you have sufficient cash flow to handle either situation.) We can't know what the interest rates will be like going forward, but we can know what they are today, because you gave us those numbers in your question. Quick now: Given the choice between a known return of 3.7% annually and a known return of 7% annually, with identical (and extremely low) risk, where would you invest your money? By putting the $15k toward the $14k loan, you free up $140 per month and have $1k left that you can put toward the $30k loan, which will reduce your payment term by $1k / $260/month or about 4 months. You will be debt free in 14 years 8 months. You pay $14,000 instead of $16,800 on the $14,000 loan, reducing the total cost of the loan by $2,800, and reduce the cost of the $30,000 loan by four months' worth of interest which is about $175 (so the $30,000 loan ends up costing you something like $46,600 instead of $46,800). By putting the $15k toward the $30k loan, you cut the principal of that one in half. Assuming that you keep paying the same amount each month, you will reduce the payment term by 7 ½ years, and will be debt free in 10 years (because the $14,000 10-year loan now has the longer term). Instead of paying $46,800 for the $30k loan, you end up paying $23,400 plus the $15,000 = $38,400, reducing the total cost of the $30,000 loan by $8,400 while doing nothing to reduce the cost of the $14,000 loan. To a first order estimate, using the $15,000 to pay off the $14,000 loan in full will improve your cash flow in the short term, but putting the money toward the $30,000 loan will give you a three-fold better return on investment over the term of both loans and nearly halve the total loan term, assuming unchanged monthly payments and unchanged interest rates. That's how powerful compounding interest is. It depends on the country and possibly the bank. In the United States, my savings accounts compound monthly, using the average balance for the month. You should have an account agreement or terms document that details how the bank does computations like interest payments. Assuming the United States. This is a loan and not an investment.  You report this as income and will pay your tax rate on the 18% of the money that the borrower pays you (any money paid above what was originally lent) for the year in which it was received. You owe taxes on the income even if the borrower does not send you a Form 1099-INT showing the interest you received. For example: If you loan $10,000 and receive $1,800 in interest, and your tax bracket is 25%, then you will owe $450 in tax. What you're getting at is the same as investing with leverage. Usually this comes in the form in a margin account, which an investor uses to borrow money at a low interest rate, invest the money, and (hopefully!) beat the interest rate.  is this approach unwise? That completely depends on how your investments perform and how high your loan's interest rate is. The higher your loan's interest rate, the more risky your investments will have to be in order to beat the interest rate. If you can get a return which beats the interest rates of your loan then congratulations! You have come out ahead and made a profit. If you can keep it up you should make the minimum payment on your loan to maximize the amount of capital you can invest. If not, then it would be better to just use your extra cash to pay down the loan.  [are] there really are investments (aside from stocks and such) that I can try to use to my advantage? With interest rates as low as they are right now (at least in the US) you'll probably be hard-pressed to find a savings account or CD that will return a higher interest rate than your loan's. If you're nervous about the risk associated with investing in stocks and bonds (as is healthy!), then know that they come in a wide spectrum of risk. It's up to you to evaluate how much risk you're willing to take on to achieve a higher return. With 10% return over three years, depositing $900 each month, in three years $34,039.30.  Re. downvote. I guess this is too brief and without explanation, but I was rushing.  If you want further explanation of how this is calculated check the link already posted by JoeTaxpayer, and have a look at the formula for continuously compounded return.  Also, try out the numbers in the simplified example below yourself.  E.g.  Addendum mhoran_psprep has pointed out that I didn't read the OP's post closely enough.  With rolling investments the total return will be:  Where n is the month number i.e. 36, 37, etc. "Your plan as proposed will not work, because it goes against how banks make money. Banks make money in two ways:  (1) Fees [including account fees, investment advice fees, mortgage application fees, etc.]; and (2) Interest Rate Spread. They borrow money for x%, and they lend it out for x+y%. In a simple form, someone gives the bank a deposit, and earns 1%. The bank turns around to the next person in line and loans the money to them for 4%. You are asking them to turn the interest rate spread into a cost instead of their main source of profit: You are asking the bank to borrow money from another person paying them 1.2% interest, and then loan the money to you, paying you 0.6% interest and keeping 0.6% for themselves. The bank would lose money doing this. Technically yes, you can borrow from a bank and invest it in something earning above the 4% interest they will charge you. You can then pay the bank's interest off of your earnings, and make some profit for yourself. BUT this carries an inherent risk: If your investment loses money, you still owe the bank, effectively increasing the negative impact of your investment. This tactic is called ""Leveraging""; you can look it up on this site or on google. It is not something you should do if you do not fully understand the risks you are taking on. Given that you are asking this question, I would suggest tactfully that you are not yet well informed enough to make this sort of investment. You run serious risk of losing everything if you over-leverage (assuming the banks will even lend you money in the first place)."