What are the drawbacks of using a personal for investing in stocks
Investing money is a wise financial choice and can result in your increasing the money you have exponentially if you are lucky. It can offer financial stability when you have retired and may even help you retire early. Investing in the stock market is tried and tested method for increasing the value of your money. However, it is not without its risks. The old adage says never invest something that you cannot afford to lose, and this may make you think twice about taking out a personal loan to make investments on the stock exchange. There is no such thing as a sure thing in the stock market. Stocks rise and fall in value, and it is all determined by market consumption and how the company decides to do business. Sudden changes in trends and any problem in a company that you are not aware of can mean your stock tank. But, having said that, a lot of people do make money on the stock exchange.
Pros of using a personal loan
- More funds – this seems like an obvious one, but when you get out a loan, you clearly have more money with which to invest. It can enable you to make a lot of money if you are lucky.
- Tax benefits – If you take out a personal loan, you can claim some tax benefits, such as a rebate that may be available on your loan repayments.
- Meet costs with profits – if you are successful and loan interest and other financial costs can be met with profits from the stocks you have invested in.
- Transaction costs – if you get a loan, you may well be able to make larger investments in one stock, which will bring down the cost of the transaction as a proportion of the amount you invest. Lots of small investments can cost you a fair proportion in translation fees.
Cons of using a personal loan
- Interest rates – you don’t get something for nothing and a loan comes with high-interest rates, so this may force your hand to make riskier investments that offer returns in the short term.
- Negative Returns – If you make the wrong investment choice, then you will have lost money on the stock, meaning you still have the loan to pay off, and you have to do it out of your own savings if you have any.
- Collateral – if you borrow against some form of collateral, say your house, you could lose it.
A Financial Advisor
A certified financial advisor will help you look at ways to invest your money. They are adept at enabling their customer into making good financial decisions. They may offer advice on particular loans to get out if this avenue appeals to you. They will help you look at the types of investments that make sense when investing with borrowed money. For example, it is only advisable to borrow money for an investment when there is a high ROI (return on investment) and a low risk associated with it. The stock market is generally considered a risky way to use borrowed money, and a financial advisor may try and talk you out of it, while showing the least risky investment opportunities at that time. Additionally, if the stock you are going to be investing in, takes years to develop that ROI you require, it probably means you need to pay the loan back before you get any benefit from the loan. When this means is that a financial advisor may well try and interest you in other forms of investments.
What personal loans are suitable for investments
The name was given to a personal loan that is taken out for making investments is known as a gearing or leveraging loan. The good news is a personal loan can be used to make any form of personal endeavor, unlike a car loan, or mortgage, etc., which must be used for that specific purpose. However, this means that a personal loan is more expensive, with a higher interest rate than an item-specific loan. It is perfectly acceptable to take out a loan to use on the stock market. To get a personal loan, you normally have to borrow against some sort of collateral, such as a car or your home. However, it is possible to get an unsecured personal loan. A personal loan can last up to seven years, and interest rates will vary from bank to bank.
Borrowing money to invest in the stock market is not generally not advisable. However, it is not illegal either. Although you run the risk of losing everything, there is the potential for gains. So, the best advice is to speak to a financial advisor.