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There are many reasons that can justify both options. Whether you would like to sew on the inside or on the outside entirely depends on what you aim to achieve and the type of patch you are working with.
Let us examine the result you would like to see on the denim.
If you plan to stitch a patch on the inside, then you get a subtle look. Something that is not outwardly presentable but still adds a sense of diversity to your denim. In other words, you can make your denim look stylish without having to display the style on the outside.
When you add a patch on the outside, then you are showing a bold look. You are showing off a bit of your personality in a very visible manner.
That being said, one of the main reasons that people should consider whether or not they should use a stitch on the inside or the outside is by examining the type of patch that they are working with.
If you are using a patch that has no designs and simply has a plain color, then you could place the patch on the inside of the denim. This serves two purposes.
Again, it is also based on your decision. If you prefer to block the tear entirely, then you can choose to keep the patch on the outside.
On the other hand, if you have a patch that has some sort of print, text, image, or other design, then you should ideally use the patch on the outside. This is to ensure that the graphic is not blocked from view. In some cases, the graphic could be small enough for people to see through the tear in the denim. In such cases, you could use the patch on the inside with the graphic or pattern showing out.
There is no rule set in stone when you are working with patches. What you create is entirely up to you. As I had mentioned before, try and have fun with your creations and experiment with different styles. The best way to find out if the patch goes on the inside or on the outside is for you to test it out against the denim. If you are comfortable with the patch on the inside, then that is what you should choose. If you find out that the patch is meant to be outside, then you have your answer!