Is a personal loan a good option for investing purposes?

  • Published on: 15 Feb 2024
Is a personal loan a good option for investing purposes?

Getting a personal loan for investing in stock markets, also known as leveraging or gearing, can sometimes be a smart decision, offering excellent benefits. No wonder why most investors use this technique to accumulate sizeable corpus. 

Apart from stock markets, wherein the returns depend on market climate, you can invest in traditional avenues like fixed deposits. They help generate secured returns, unlike the former. Read on to know the pros and cons of getting a loan for investment purposes.

When is Getting a Personal Loan for Investing Purposes a Good Idea?

A personal loan for investing in stocks or other instruments is a feasible solution in the following instances:

  • Your credit score is good, enabling you to opt for a loan or a credit card with a lower APR (Annual Percentage Rate)
  • You can expect a fixed return from your investment avenue like in the case of fixed deposits
  • Conversely, if you’re able to generate better returns that exceed the borrowing cost of the credit
  • There is minimal risk of losing the investment amount
  • There are chances of earnings potential returns before the loan tenure ends

Pros of Using a Personal Loan for Investing

Here are some benefits you must know:

  • No End-Use Restrictions

You can utilise the borrowed amount for any purpose, such as:

  1. Making investments
  2. Clearing bills
  3. Paying educational costs
  4. Funding vacations, etc.

The lender won’t ask about such details when approving your loan amount. Remember, you’ll have to meet the eligibility criteria and submit relevant documents and then you are good to go!

  • Ample Funding

Another significant benefit is getting a significant sum once your loan is approved. Invest the borrowed amount across various investment avenues, diversifying and minimising the risk parameter.

  • No Need for Collateral

As this form of credit is unsecured, there’s no need to pledge your valuable assets as collateral. So, you can get the approved amount without depositing any of these valuables with the lender:

  1. Bonds
  2. Property
  3. Assets
  • Quick and Easy Access to Funds

You can get instant loan approval once you meet the required eligibility parameters and submit documents, such as:

  1. ID proof like your Aadhaar card, PAN card, passport, etc.
  2. Address proof, such as utility bills, driving licence, ration card, etc.
  3. Income proof, such as the latest salary slips and bank statements

Also Read: Is Investing In Online Education Course Worth?

Cons of Using a Personal Loan for Investing

Check out some limitations:

  • Higher Interest Rates

Now, you may wonder, ‘Is it legal to invest a personal loan in the market?’ While the answer is affirmative, remember that lenders levy interest rates on the borrowed amount. Hence, if you choose a lender charging high rates, you’ll end up losing your returns. The best way to go about this is to compare various offers and choose a financial institution offering affordable interest rates.

  • Additional Loan Fees and Charges

While interest rates of personal loans can have an impact on your generated returns, don’t forget the various types of fees and charges. Lenders levy the following fees when sanctioning your loan:

  1. Processing charges
  2. Late payment charges
  3. Pre-closure charges, etc.

These charges can increase the borrowing cost and in case the returns from the investment are lower, you end up paying more than what you will earn.

  • Shorter Loan Tenure

Personal loans generally have a shorter tenure, which can affect your returns. While investing in the stock market, you must invest for a longer period to earn good returns since the market can be volatile in the short term.

  • Risk of a Debt Trap

Getting a personal loan for investing comes with the responsibility of timely repayment. If you don’t repay on time, there’s a risk of falling into a debt trap, meaning you’ll end up taking more credit to clear your existing loans.

Now, you can decide whether getting a loan for investment is ideal for you. If you plan to opt for this form of credit, consider getting an Instant Cash Loan from Fibe. Here, you can get the funds quickly at affordable interest rates starting from just 2% per month. 

Post approval, you get the funds in your account within 10 minutes to meet your timely needs. Not only that, you can repay the loan over 36 months through convenient EMIs. Download the Personal Loan App or log in to our website to start your investment journey.

FAQs on Should You Use a Personal Loan for Investing

Can personal loans be used for investing?

Yes, you can get a loan for investment purposes. It offers various benefits, such as:

  • Provides a large amount for investment
  • Offers funds quickly and easily
  • No restriction on end-use
  • Doesn’t require collateral

Can I invest in stocks by taking a personal loan?

If you’re wondering, ‘Can I use a personal loan for trading,’ the answer is yes. You can get a significant investment amount and enjoy various other benefits of opting for this type of credit.

Can I take a personal loan and invest in mutual funds?

Yes, opt for this form of credit and invest in any avenue you like:

  • Mutual funds
  • Stocks
  • Fixed deposits, etc.

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