For higher returns, nothing can beat stock investments. As a result, the stock market is among the most popular investment options. However, highly profitable investments need large funds and high-risk tolerance capacity.
Many people are interested in taking a personal loan to make investments in financial securities, likes, shares, mutual funds, bonds, etc. Many investors want to take a personal loan for stock market investment and earn maximum returns in a short span. Nowadays, availing of quick personal loans is easy because lending institutions follow a digital process that takes minimal time to process a loan application.
The stock market is volatile, and you could lose all of your capital invested in no time. So, how practical is taking a personal loan for stock investments? To decide, you can compare the pros and cons of using the loan for stock investments.
Why Do Investors Think Of A Personal Loan For Stock Investments?
- Restriction-free end-use: Many loans are offered to meet specific financial needs, like, home loans, car loans, and others. There are no such limitations associated with a personal loan. You are free to utilize the personal loan amount for any legitimate purpose, so if you want to invest the loan amount to earn returns, you can do so. Reputed lending institutions can offer you the required funds against minimal personal loan documents.
- No risk of losing your collateral: You need not put up any security to take a personal loan. You can keep and use your valuable assets. In other loans, the lenders can liquidate your assets to recover the loan amount if required. There is no such risk with a personal loan.
- Quick and easy loan process: Investors need funds quickly to grab opportunities available in the stock market. Quick personal loans can provide you with the required funds with minimal documents as compared to other loans.
- Larger investment capital: If there is a significantly high profitable opportunity, you may want to invest more money to get higher returns. A personal loan with lending institutions can offer you up to a maximum of Rs.25 Lakhs if you meet their eligibility criteria. You need not touch your emergency funds to invest in the stock market.
- Tax benefits: There are two benefits regarding taxes. Investors can enjoy tax benefits under section 80C. Also, they can claim the tax deduction on the loan’s interest payments.
- Counter EMIs with profits: If you find a high-profit potential opportunity in the stock market, you can use it to repay the loan EMIs. However, one must take prudent investment decisions to put money in the stock market.
Cons Of Using Borrowed Funds To Make Stock Market Investment
While there are many benefits of personal loans for stock investments, you cannot ignore the other side of the coin as there is an inherent risk in the stock market.
- Risk of Losing Capital: If you fail to invest in the right stocks, you can lose the borrowed funds due to negative returns. It will make it harder to repay the loan. Therefore, you should consider this option only if you have sound market knowledge. There is always a risk that you may lose the capital partially or entirely.
- Interest Payments: If your credit history does not support your credit score, you may have to pay high interest on a Personal Loan. It will be a huge burden if you cannot earn sufficient income to clear the debt.
- Repayment Rigidity in a Short-Term: Generally, a personal loan is provided with a flexible tenure, but it is short-term – one to five years. If you want to invest for long-term returns, you may find it difficult to repay the loan within the loan tenure.
It is something that could help you decide on taking a personal loan for investment purposes.
You can consider a personal loan after considering the pros and cons of one. The answer ultimately depends on you –
- How much risk can you take to make stock market investments using borrowed funds?
- How skilled are you in finding the right opportunities in the stock market?
Investors should refrain from taking out unsecured or high-interest loans. You can consider reputed lending institutions to apply for a personal loan at easy terms, like minimal requirements for personal loan documents.