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The interest rate from the Indian bank is higher so can a personal loan be taken in the USA to pay back the loan in India? If yes, then will there be major tax challenges or any other such hurdles? Is it worth considering or no?

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  • Do you have income in the United States? Do you have credit score in the United States? Jan 22 at 13:00
  • This question addressed the same scenario with better understanding of the currency exchange issues: money.stackexchange.com/q/73811/5458
    – Ben Voigt
    Jan 23 at 22:45

2 Answers 2

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Assuming someone will loan you the money, sure. The question is - will you pay back the loan with earned INR or USD?

If you are earning USD and pay back the loan in USD, then yes it would be more beneficial to pay a lower interest rate.

If you earn INR and convert it to USD to pay back the loan, then the higher INR interest rate presumes that INR will inflate faster than USD, so you'll be converting to USD at worse rates over time than your initial conversion, possibly negating the benefit of the lower interest rate.

There is no tax impact of borrowing or paying back a loan in the US - unless the loan if for a mortgage on a US property or is for a legitimate business purpose (in which case the would be deducted as a business expense, not a personal expense. I do not know if there is a tax impact to paying off a loan in India.

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    To be clear -- for the exchange rate risk to simply "negate the benefit" is actually an optimistic scenario. It can also cost a whole lot more (when viewed in INR) than the loan in India would have.
    – Ben Voigt
    Jan 23 at 22:43
  • Well that's based on the expected change in exchange rates based on interest rates, but yes it could actually be worse.
    – D Stanley
    Jan 23 at 22:45
  • But if you got a loan in USD, then you could convert it all to INR in a lump sum and pay off the Indian loan immediately, or spread out converting the money over time. So you could manipulate the exchange rates to your advantage. Whether you would actually come out ahead on the deal would require investigating interest rates in both countries, exchange rates, and inflation in both countries now and anticipated in the future. I haven't done the calculation so I don't know.
    – Jay
    Jan 24 at 15:07
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    @Jay: Obviously one has to convert and pay off the loan immediately, as the whole point of the question seems to be to avoid the high interest rate at the bank in India.
    – Ben Voigt
    Jan 24 at 22:28
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    @BenVoigt If you have reason to believe the exchange rate will be more favorable in the future, it may be to your advantage to delay converting the money. Though in that case you'd presumably be better off delaying getting the US loan.
    – Jay
    Jan 25 at 1:27
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There are a number of questions to ask.

  1. Where do you live and work? exchange rates can shift unpredictably, so it's safer to have your loans denominated in the same currency as your salary.
  2. Are the terms and conditions of the two loans comparable?
  3. Can you even get the loan you seek? personal loans tend to be for relatively small amounts of money over relatively short terms. Lenders will often be unwilling to lend to people who don't live/work in their country (partly because of point 1, partly because they may have difficulty enforcing the loan outside the country)

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