Can You Use a Personal Loan to Invest?
Do you want to invest in some business, bank, or the stock market? Do you have no money with you to invest? Do you take a benefit from taking a loan from a bank and then investing it for profit? It is a question that a lot of people ask. If you are searching for an answer to this question, then you are in the right place. I shall discuss the possibilities of using a personal loan for investment. It is a fact that if you want to build wealth, you will have to invest. How can you make a solid investment if you don’t have money with you? Will you break into your bank for it? I am telling you another option that is; taking a loan from a bank and then investing it in building capital. Borrowing money for investment can pay you if you have a sense about what you are doing. But it is not as simple and risk-free as some people consider.
Some people’s response to the above question is in negative. They will not agree to the idea of borrowing money and then investing in the stock market or other business. But experience and numbers tell something different. It is a fact that the stock market is volatile, and you cannot say something about it with certainty and for any investment in the stock market you to think again and again. We are discussing a scenario, and we are telling about two situations where you are borrowing money and then invest it. You serve the EMIs or making monthly investments of a certain amount. Both the ways you are investing, you will have to face the volatility of the stock market. Now the question is what your source of funds is. Have your monthly installments or a lump sum?
You take a personal loan of 10lac for five years, the interest on this loan be 11% and pay 21484 using your salary. Other case is that you do not take a loan and invest 21484 every month. Now, it is assumed that the market rate is 20% annual for the next five years. This can be lower or a bit higher. If we see stock market history, it is on average, over 15%. In these, you can grow from your loan. These figures show that you will earn in the long run. But the condition is that the stock market is not crashed, and it goes on smooth.
Now I am telling about steps you need to take for such investment.
- Check loan rates
The first step is to check the loan rates. You should find out what the interest rate is your lender offering. If you earn high returns from your investment, but at the same time, you pay it back to back will not make any sense. If annual profit rate is more the half of your invested average, then you will not need to go for such a deal. It will not give you much, and all your process will be in vain. If it has a better margin for you, then you must take the risk.
- Assess the Payments
Another consideration that you must take is whether your returns are rolling in on a regular base so that you can repay the loan. But if you are tending on buying and holding approach for investment, then you will have to wait for a more extended period to realize what you have earned from investment. Also, for this purpose, you must have the regular income to repay for the loan you have taken for investment.
It is essential you have not taken any other loan, and you are not repaying it. Such as student loans or mortgage that you are repaying at the same time. In this situation, if you default your loan you will plunge in another financial trouble also the lender may seize your assets and take you to court and in case if he wins, you may lose your wages. There will be a further worst scenario when you have to become bankrupt to get out of the situation and further destroy yourself financially. You must make sure that your loan payment does not put you in financial crisis. All you need to do is to think before you leap.
- Investment performance
It is not a good idea that you jump into the stock market without any research and knowledge. It becomes further valuable when you are going for investment with borrowed money. You must have complete data of mutual fund in which you are investing. You should have a look at its performance from the beginning. Don’t see and lured by just advertisements or a few months, performance report. If a stock is performing well now and is in profit, it does not mean that it was so a year ago. You must invest only if you have a proof of its reliable past performance, though it is not a guarantee for the future.
- Review the fees
It is becoming a trend that lender sometimes imposes service charges on the borrower in addition to charging the interest. Though it may be low, it will cost you and will be eating your returns. Along with this, you must also take a look at your investment costs. If you go in for online investment, through an online stockbroker, you will have today a trade commission on each financial transaction. There are also management fees if you invest in mutual funds. My objective to tell you all is that you make a complete evaluation of the whole process before jumping into this game.
Summing up the whole discussion, using your loan for investment is risky and a gamble. You must analyze the entire process, interests, fees, investment risk, and then make a decision check our Instant Loan online to find out more. Don’t be lured by stories the stock brokers tell you. Assess by yourself and then go on.