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Complete Opposite Calculations and Opinions - Using Loan to Invest - Paying Monthly Installments with Monthly Income
Sorry in advance, but this will be long.  Also, it sounds like your friend is a tool. I hope this "friend" is not also your financial advisor... they would be encouraging you to make a very poor investment decision. They also don't know how to do financial math.  For what it's worth, I am not wrong. I have correctly answered a set of changing questions as you have asked them... Your friend is answering based on a third, completely different investment model, which you proposed in the edit to your last post. If that's what you meant all along, then you should have been more clear in the questions you were asking.  Please let me layout the following: How the previous questions//investment proposals were built How to analyze this current proposal What your other option is Why the other option is best in a 'real world' market The First Question My understanding of the initial proposal was to take out a $10,000 loan, invest the proceeds, and expect to not have any money of your own tied up in this. Because that OP did not specify that this is an interest-only loan (you still haven't in any of your questions), the bank will require you to make payments back to them each month that include principal and interest.  Your "friend" is talking about the total interest paid being the only cost of a loan. While that is (almost) true, regardless of what your friend says, significantly more cash is involved in making sure that all the payments are made on time---unless you set up an interest-only loan. But with the set up laid out in this post, and with the assumptions I specified there, the principal payments must be included because the borrower has to pay back the bank and isn't not tying up any of their own money.  In that case, my initial analysis is correct--your breakeven is in the low teens for an annual required return.  The Second Proposal Your second proposal... before any edits... refined things a little bit, to try to capture the any possible returns by not selling something. As I indicated there, (with what was an exaggerating assumption), the lack of clarity makes for an outlandish required return.  The Second Proposal...with edits, or the one proposed above I will get to the one proposed above in a second, but first let me highlight a few problems with your friend's analysis.  Simple interest: the only place (in the US at least) that will lend with simple interest is student loans. Any loan that you actually take out will be compound interest.  Not an interest only loan: your "friend" is not calculating interest correctly. Since this isn't an interest-only loan, the principal balance will reduce every time you make a payment, by ~$320-$340 each month. This substantially reduces the total interest paid, to $272.79 over the total 24 months.  "Returns": I don't know what country, or what business your friend works in, but "returns" are a very ambiguous concept. Investopedia defines returns as gains or losses. (I wish I could inhabit the lala land that your friend lives in when returns are always positive). TheFreeDictionary.com defines a return for finance as "The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period."  When you have not made it clear that any other money is being used in this investment plan (as was the case in scheme #1 and scheme #2a,) the loan still has to be paid. So, clearly the principal must be included in the return calculations.  How to evaluate this proposed investment scheme Key dimensions: Loan ($8,000 ... 24 months ... 0.27% monthly rate... monthly compounding... no loan origination fees) Monthly payment (PMT in Excel yields $344.70). Investment capital (starting = $8,000) Monthly Return (Investment yields... we hope it's positive!)  Your monthly contribution from your salary Taxes = 10%. Transaction Fees = $20  Go and lookup how to build an amortization table for a loan in Excel. Your life will be infinitely better for it.  Now, you get this loan set up and invested into something... (it costs $20 to buy the assets).  So you've got $7980 chugging away earning interest. I calculate that your break even, with you paying in $344.70 of your own money each month is 1.81% annually, or 3.42% over the 24 month life of this scheme. That is using monthly compound interest for the payments, because that's what the real world would use, and using monthly compounding of the investments' returns.  Your total interest expense would be $272.79.  This seems feasible. But let's talk about what your other option is, given that you're ready to spend $344.70 each month on an investment.  Your other option  I understand the appeal of getting $8,000... right away... to invest in something. But the risk behind this is that if the market goes down (and markets do) you're stuck paying a fixed amount for your loan that is now worth less money.  Your other option is to take your $344.70, and invest it step-by-step. (You would want to skip a month or two buying assets in the market, so that you can lessen transaction costs). This has two advantages: (1) you save yourself $272 in interest. (2) When the market goes down, you still win.  With this strategy, you still win when the market goes down because of what is commonly called "dollar cost averaging". When the market is up, your investments are also up. When the market goes down, your previous investments decrease in value but you can invest new money at the lower rates.  Why the step-by-step, invest your own money strategy is better At low rates (when you're looking for your break-even), the step-by-step model outperforms the loan. At higher rates of return (~4% + per year), you get the benefit of having the borrowed money earning more gains.  In fact, for every continuous (meaning set... not changing month-to-month) interest rate that you can dream up that is greater than about 4% per year, the borrowed money earns more.  At 10% per year, the borrowed money will earn about $500 more over the 2 years than your step by step investment would.  BUT I recognize that you might feel like the market will always go up. That's what everyone thinks. And that's alright.  But have one really bad month, or a couple of just-not-great-months, and your fixed 'loan' portfolio will underperform. Have a few really bad months, and your portfolio could be substantially reduced in value... but you would still be paying the same amount for it each month.  And if that happened (say your assets declined -3% in 3 of the 24 months...) You'd be losing money relative to the step-by-step portfolio.