Should You Use a Personal Loan to Invest?

Last Updated: June 26, 2019
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Even though it’s difficult to invest when you don’t have much capital, you have the option to apply for a personal loan to get your feet off the ground. However, there are a couple of things that you need to consider before thinking about applying for a personal loan to make investments.

Most people have the understanding that in order to accumulate wealth, you have to make strong investments. 50% of Americans invested in the stock market in 2015. This is proof that making investments is a common way to get wealth. Many Americans ask themselves whether or not you should use a personal loan to invest.

Is Borrowing to Invest Right for You?

Even though it’s difficult to invest when you don’t have much capital, you have the option to apply for a personal loan to get your feet off the ground. Even though there are risks, just know that investing is not an art, but science. None the less, getting a loan is a great option if you use the right methods.

There are a couple of things that you need to consider (as well as the usual considerations )  before thinking about applying for a personal loan to make investments.

  1.  Consider Loan Rates and Repayments

Always look at the interest rates and monthly payments of a loan before applying for it to invest in stocks. Moreover, if the interest rate of a loan is too high, you have to make big gains in the stock market to pay it off. This also means that you won’t have any profits left for yourself. It’s wise to get a loan that has a low interest rate, especially if you have other debts such as a student or automotive loan.

Also, keep in mind that nothing is wrong with having good debt if you have the finances to pay it back. If you don’t, it isn’t wise to take out a loan to contribute towards paying your investments.

  2. Test Your Knowledge About Investing

The average person doesn’t know about investing. As a result, this can make investing seem frightening. The 2009 financial crisis gave a lot of people a scare when it comes to investing. On the other hand, investing is not a hard concept. It’s just important to have a good understanding and a good knowledge base in regards to investing.

It’s best to speak with an investment advisor to make sure that you are investing in a stock that has a good track record. Doing so will give you a lot of clarity on a stock making it easier for you to predict how the stock will perform in the future.

  3. Understand The Risks

Furthermore, you can get a personal loan to make investments. If you are a witty person, you can also use this opportunity to improve your credit score. Keep in mind that you are taking a risk in investing in this way. If the loan has a high-interest rate, you can lose more money when you are suffering a loss. Remember to be careful always.

If you watch any news, you can plainly see that the market can change in the twinkling of an eye. Evaluate whether or not you can handle the markets up and down swings before taking out a loan to invest.

Since borrowing money to invest in stocks is a risky venture, only investors with experience can truly benefit. Ask yourself the following questions if you’re interested in using this type of strategy:

  • If you get a margin call, do you have a secure income from a source such as your salary to top up the loan?
  • Is your marginal tax high enough to get additional tax benefits?
  • Are you committed long-term? Gearing is a medium to having a long-term strategy (at least 5 to 10 years).
  • Do you have a plan in place for radical changes such as having a child, or decrease in income?
  • Will you panic if your investments in the market perform poorly?

It is vital for you to get financial counseling before you start investing. Also, if an investor is in association with the company they recommend you to invest in, that investment may not be the best option for you. One way to tell is by looking at your counselor’s financial services guide to see what companies they are in affiliation with.

Margin Loans and Investment Property Loans

Many people invest in stocks through getting a margin loan or property by obtaining an investment property loan. They both have their pros and cons. Find out more information about margin loans and investing in property.

What are the Different Options Of Investment?

There is a well of knowledge to digest regarding investment in itself. To help you move forward, there are some great links that will show you what a good investment looks like. They will also broaden your knowledge regarding investment mechanisms and assist you in understanding types of investments that you highly encounter in your own life.

Moreover, make sure that you familiarize yourself with the terms below this text. The term represents paraphernalia that you’re investing in.

Mutual Funds

This type of investment strategy gives an individual the opportunity to put their money together with other investors to reach a common goal. This is a very typical way of how people get stocks, bonds, or other securities that is a challenge for people to take individually.

If you want a great way to diversify your investments, then getting a mutual fund is a great way to do that.

You can use and understand them easily. On the other hand, they do have disadvantages such as not enough liquidity, hidden fees and high sales charges.

Stocks Investing

Stocks, also known as shares or equity, are common to many investors. Having a stock means that you own part of that particular company. This gives you the right to have part of the company’s earnings as well as its assets.

Moreover, purchasing a stock gives you access to be a shareholder in that company. You also have the privilege, to vote in a shareholder’s meeting. In addition to, you’ll get dividends, which are part of the profit, at the end of the financial period.

Investing in stocks yields a greater return on investment in comparison to bonds and other securities. Keep in mind that there are limitations on the potential of the return. It’s important to keep an open mind regarding losing a portion or all of your investments.

Bonds

This type of investing is the result of an investor lending money to the bond issue in exchange for payments on interest.

Bonds are classified as fixed income security. To an investor, buying a bond is the same as lending your money to a specific company. That company in return gives you your money back with interest.

For those of you who follow the investing rubric, you know that bonds are an essential investment. You don’t have to worry about your assurance. Your assurance and safety are within the bonds. Bonds are also stable in the midst of fluctuation of interest rates.

Furthermore, investing in bonds is not like a typical investment that has many risk factors. With bonds, you have fewer risks; this means that you have a low rate of return that’s normally lower than other securities. Learning more about bonds will give you a greater understanding while trading.

Property Investment

Investing in real estate is a great avenue of how you can achieve a greater return on investment.

A typical owner gains in two distinct ways while investing in property. First being the rent tenants pay. The second being the property value that accrues as time goes by; otherwise capital gains.

Even though it’s possible to yield greater returns with real estate, owning and buying real estate are two completely different things. Moreover, there is more to it than surface level components. Property investment is very different from bonds, stocks, and other investment options.

Furthermore, attempting to withdraw from your property investment is very difficult. This type of investment is not a liquid type of investing. If you try to get the money you need, you more than likely will either sell your house or increase the property mortgage. Even though it seems to be an easy task, it’s not. Even if it was an easy task to do, you have to take into account property valuation costs and real estate agent fees.

If you decide to obtain property, that means you’ve set your eyes on long-term returns. You’ll more than likely see little to no profit in the short-term. This is because you may desire to take care of other expenses such as the mortgage, insurance, etc. As a result, people who invest in real estate want to benefit from their profit as prices increase.

Commodity Investments

This type of investment is another option that investors should look in to. Investing in commodity means that you are investing in resources that affect the economy as a whole such as beef, oil, coffee, etc.

Furthermore, you also have the option to consider investing in gold or other expensive metals too. The potential for these investments offers a good return.