Investing is a great way to grow your net worth and meet financial goals. You can often earn much more with your money by putting it in the stock market instead of keeping it in a savings account. Over the long term, the stock market offers a roughly 10% annual rate of return, compared with 1% or less in a high-yield savings account.
If you’re looking to increase the amount you’re investing, you may consider taking out a personal loan to add to your investment account. But this is rarely a good idea.
Here’s why you generally shouldn’t take out a personal loan to invest, as well as a few instances when it might make sense.
A personal loan is a relatively small, unsecured installment loan that you pay back at a fixed rate over a period of three to seven years (sometimes longer). You usually don’t need to put up collateral, but you’re required to make a monthly payment until you’ve fully repaid the loan — plus interest. If you don’t, you risk damaging your credit score. Personal loan amounts often range between $10,000 and $100,000, though some lenders also offer smaller loan amounts.
With investing, there’s very little guaranteed. The money you put into the market could go up in value, or it could go down. You could even lose it all.
That difference makes using a personal loan for investing inherently risky, and usually a bad idea. In fact, some personal loan lenders even specifically prohibit you from using the money for investing. Here are a few other reasons why you might shy away from using a personal loan to invest:
Using a personal loan to invest is almost always a bad idea. However, in rare cases, it can make sense. Here are a few scenarios when you might consider investing the funds of a personal loan:
Although borrowing money to invest is fraught with peril, investing is still a good idea — it’s an excellent way to build long-term wealth and save for retirement.
Instead of taking out a personal loan and using the money to invest, consider these investing options:
If you decide to apply for a personal loan, Credible makes it easy to compare personal loan rates from various lenders, all in one place.
