Investing in the Stock Market: Should I Consider Taking Out a Loan?
September 11, 2021
Hearing about the chances of profitability in the stock market can tempt you to find ways to start investing today, even if you don’t have any cash available to fund the investment. Like many others, the thought of taking out a personal loan to invest in the stock market might have crossed your mind, too.
Although most financial experts would discourage you from using it, taking a personal loan to invest in the stock market might make sense in certain rare situations. Here’s what you need to know.
Personal Loans: Key Characteristics
Personal loans are unsecured debt, so a lender can’t repossess your car or foreclose on your house if you fail to keep up with the payments. They often have a higher interest rate than most secured loans, given the higher risk involved for the lender.
Most personal loans are fixed-term loans. Based on the term, interest rate, balance, and certain factors, you’ll need to make payments at the end of each month until you repay it completely towards the end of the fixed term. Unlike credit card loans, you can’t carry the balance forward from month to month by making minimum payments.
Unless the lender specifies otherwise, personal loans can be used for countless purposes, including stock market investments. But is it worth taking a personal loan to invest in the stock market? Let’s find out.
Taking Out A Personal Loan To Invest In The Stock Market
The Case For It
Taking out personal loans to investment only makes sense when the stock market crashes and begins to rebound. Many people are tempted to take out personal loans to earn higher returns through the sharp gains that sometimes exceed the cost of taking out a personal loan over a year. Such investments are volatile, though.
For instance, if you’ve taken out a personal loan with a 10.99% interest rate, taking a risk with such an investment would only make sense if the returns, including taxes, would exceed the 10.99% cost. There are several reasons why taking out a personal loan to invest in the stock market might not be a good idea.
The Case Against It
Personal loans usually have relatively short fixed terms. Typically, the longer the repayment term is, the higher your interest rate, which substantially impacts potential profitability from stock investments. Additionally, you’ll need to make equal monthly payments. Selling portions of the sticks to keep up with payments can further lower the return or result in locking in loss.
If you think you’ve got a great investment opportunity, experts at K.N Horton Financials, a credible non-recourse loan provider, can help you secure a personal loan at impeccable rates.
We have extensive experience working with major stock markets worldwide to ensure quick, non-recourse loans, high-net-worth loans and personal loans for yacht financing, private jet loans, commercial funding, and more in the Philippines, Malaysia, Singapore, New Zealand, Japan, Australia, South Africa, and Indonesia among others.