Should You Take Out a Personal Loan to Invest in the Stock Market? (2023)

Have you ever thought about taking out a personal loan to invest? If so, you are not alone.

When you learn about the ability to make money in the stock market, it can be tempting to find a way to start investing today. This is true even if you don't have cash on hand.

Do you want to invest but do not have money? Find a personal loan with Fiona

If you're trying to get ahead, it can seem tempting to take shortcuts to get there faster. Unfortunately, some alternatives are a bad idea. This includes taking out a personal loan to invest in the stock market in the vast majority of cases.

There may be a very rare time when it makes sense to take out a personal loan to invest. However, I don't think I would ever do that. Here's what you need to know.

What's to come:

How personal loans work

Should You Take Out a Personal Loan to Invest in the Stock Market? (1)

personal loansit has a couple of key features that are important to understand.

Personal loans are unsecured debts

First of all, they are unsecured loans. That means the lender can't foreclose on your house or repossess your car if you don't make the payments.

Unsecured loans, such as personal loans, have higher interest rates than secured loans. This makes sense because there is nothing the lender can directly seize if you default on your loan. It is riskier for the lender.

Personal loans have a fixed term

So personal loans are fixed-term loans. This means that you have a set number of months or years to pay off the loan after you take it out.

Depending on your balance, interest rate, and term, you will have to make a monthly payment that results in you paying off the loan at the end of the term.

This is different than a credit card, where you can carry a balance from month to month and make minimum payments.

This is important if you are consideringinvestthe money. This means you have to make a pretty decent monthly payment each month. You cannot pay the minimum and pay the rest at the end of the loan.

Can I use a personal loan to invest?

Unless your lender specifies otherwise, a personal loan can be used for whatever you want. This includes investing in the stock market.

(Video) Taking A Loan To Invest In Stocks, Should You Do It Or Not?

That being said, some lenders will offer lower personal loan interest rates if you use the money for certain purposes. This is because some uses may result in less risk to the lender than others.

For example, personal loans fordebt consolidationmay require funds to be disbursed directly for the loans you are consolidating. Read the terms of your loan to understand if there are any money restrictions.

Why would someone take a loan to invest?

A person may be tempted to ask for a personal loan to invest if they see an opportunity to earn money. If a person could earn a higher return on investing the borrowed money than he pays in interest, she could earn.

This can be very tempting after the stock market crashes and starts to recover. In some cases, you can see dramatic gains over a few days or weeks that would exceed the cost of some personal loans over the course of a year.

When would it be worth it?

Getting a personal investment loan only makes sense when you are very confident that the returns on your investment will exceed the costs of your loan..

For example, let's say you can get a personal loan with an interest rate of 11.99%. It would only make sense to use that money to invest if its returns could exceed that 11.99% cost.

However, investment is volatile. Nothing is guaranteed. It probably wouldn't make sense to take out a personal loan at 11.99% to earn 12% investing. Due to taxes and the minimum amount you would win, you would not win.

To make it worth the risk, you'll likely have to earn returns that far exceed the interest rate you pay on your personal loan.

There are other types of investments besides the stock market. Some of these investments may make more sense using a personal loan.

For example, let's say you have an opportunity to invest in your small business that has a large profit margin. Unfortunately, you can't get access to cash other than a personal loan for whatever reason.

If you invest $10,000 but can earn $20,000 on that investment in three years, it might make sense to get a personal investment loan.

Why it may be a good idea to take out a personal loan to invest in the stock market

Should You Take Out a Personal Loan to Invest in the Stock Market? (2)

Take out a personal loan to invest in anything, evenstock market, it only makes sense in one scenario. This scenario is when you know with a relative degree of certainty that your profits will exceed your costs.

Investing in the stock market at any rate of return is far from safe.Personally, I don't think it's a good idea to take out a personal loan to invest in the stock market.

Why it may not be a good idea to take out a personal loan to invest in the stock market

There are several reasons why taking out a personal loan to invest in the stock market is a bad idea.

Personal loans have fixed terms

First of all, personal loans have fixed terms that are usually relatively short. Personal loan terms typically do not exceed seven years, although they may be longer in some cases.

Short terms are a problem because most investments vary greatly from year to year. Returns are average over the long term, but short-term returns are highly unpredictable.

(Video) Should I Take Out a Loan to Invest in the Stock Market? | Taking out a Loan to Invest, Good or Bad?

While seven years seems like a long time, it's not in the grand scheme of the stock market.

high interest rates

Personal loans do not offer low interest rates likeauto loansmimortgagesdo. While you may see ads for low personal loan rates, like 5.99% APR, people rarely qualify for them.

These low rates are usually for funds for a specific use, such as debt consolidation. Also, they are generally for short-term loans, like 24 months. Finally, you typically need to have impeccable credit to qualify for these rates.

To make matters worse, the longer the term of the loan, the higher your interest rate will be as well. For you to invest long enough for investment returns to be less volatile, it would cost you even more in interest payments. This can reduce your potential profit.

You have to make monthly payments on your loan.

Personal loans require you to make equal monthly payments. When you invest, you don't want to have to sell parts of your investment to make the payments.

Doing so would reduce its performance. It can also make you sell when your investment is performing poorly, resulting in a loss.

Other types of investments with higher returns may not be as liquid. This means that you can only sell them at certain times. If you can't withdraw your money to make your monthly payment, you may default on your loan.

Who should consider taking out a personal loan to invest?

Should You Take Out a Personal Loan to Invest in the Stock Market? (3)

In my opinion, only people with investments that have a guaranteed return and little or no risk should take out a personal loan to invest. Such investments rarely exist.

The risk is not worth the relatively low amount you will earn in loan interest costs in the vast majority of cases.

This means that most people should avoid taking out a personal loan to invest.

It's all about risk and return: here's an example

Let's say you take out a five-year, $10,000 personal loan to invest in the stock market. There is no origination fee, so you get $10,000 up front. Interest rates on these loans vary, but you get an APR of 11.99% for the purposes of this example.

Your investment has a rest period and you get an incredible 15% return on your investment every year. In that case, it might make sense to take out a personal loan to invest. Unfortunately, you would only know after the fact.

At the same time, your interest is not tax deductible. You would have to pay income taxes on your investment gains. This would reduce your earnings.

Even without taxes, in theory, you would only earn 3.01% of the difference between the APR of the loan and the return on investment.

Once you factor in the fact that you would have to make a monthly payment of around $222, things get more complicated. You would have to have cash on hand to make that monthly payment, or you would have to sell part of your investment each month to make your payments.

If the price of your investment fluctuates, you may have to sell at a low price to make the monthly payment. This can reduce your future returns to below the 15% per year that the investment would have returned you if you had left the money in the investment all along.

(Video) Should You Invest With Borrowed Money?

Now let's look at an example with a more reasonable rate of return for the stock market. Suppose you earn a return of 8% each year.

In that case, you would be paying 3.99% per year to invest. Has no sense. You would not take out a personal loan to invest because it would cost you money.

Personal Loan Providers You May Consider

If you have an investment opportunity that is likely to result in a return greater than the cost of the loan, here are some lenders you may want to consider.


fionadoes not offer personal loans directly, but helps you find a personal loan lender. After choosing the type of loan you want, enter a few details about your situation. For personal loans, enter your credit score range, ZIP code, loan purpose, and the loan amount you are requesting.

Based on this information,fionait will show several lenders that may meet your needs. They show estimated terms, APRs, and monthly payments. If you find an offer you like, click continue. You will be prompted to enter information to get loan offers tailored to your situation.

Find a personal loan lender with Fiona.


Monevois another personal loan aggregator site. You'll only need some basic information about yourself and the purpose of your loan to get quotes from over 30 different lenders. The process will not affect your credit score and you are not required to accept any offer.

If you want to get an idea of ​​the lenders and the rates they offer, you can browse a list even before you start the quoting process. Loans are available in amounts up to $100,000, with rates ranging from1,99% - 35,99% TAE. If you like one of the offers, you will advance to the full application.

By shopping around multiple lenders at the same time, you'll save time and increase your chances of getting great rates. Regardless of whether you opt for one of the quotes offered or not, you'll have a great idea of ​​the rates and terms you can expect.

Get Monevo personal loan rate quotes.


credibleis another personal loan aggregator. They allow you to check the rates of your personal loans without affecting your credit. Since it doesn't hurt your credit, it doesn't hurt to check to see if they have deals that other aggregator sites don't and may offer a better rate.

crediblehe is so confident in his ability to offer the best rates that he will give you $200 if he finds a lower rate. Of course, terms apply, so check offer details. Even with that guarantee, it still makes sense to do a little research to make sure you're getting the best price.

Get personal loan quotes from Credible.

Reliable Credit Disclosure- To verify the rates and terms you qualify for, Credible or our partner lender(s) make a hassle-free credit application that won't affect your credit score. However, when you apply for credit, your complete credit report from one or more credit reporting agencies will be requested, which is considered a strong credit application and will affect your credit.

Places to consider investing if you decide the potential returns are worth the risk

If you decide to take out a personal loan to invest, these are some of the options that you can consider.

robot consultants

robot consultantsManage your money on your behalf using technology instead of human financial advisors. Based on your risk tolerance, robotic advisors generally build a well-diversified portfolio.

Auto advisors often charge a fee for their service, which will reduce your profits. Because robo advisors often take a diversified approach, you are unlikely to hit a home run and make incredible profits.

(Video) Should You Borrow Money To Invest | Leverage Stocks

self-directed brokerage accounts

Self-directed brokerage accounts allow you to choose what you want to invest in. You can invest in a variety of options including individual stocks, mutual funds, and ETFs.

Self-directed brokerage accounts allow you to be more likely to earn returns that exceed the interest rate on a personal loan. At the same time, they can also result in a bigger loss.


Exchange traded funds(ETFs) are a basket of investments that help you diversify. When you buy an ETF, you're typically buying multiple investments. Some ETFs are as big as the S&P 500 Index, while other ETFs only track a small sector or industry.

If you want to bet on a particular sector with an ETF, there is a chance that your returns will be high enough in the short term. If you bet wrong, your losses can also be huge.

Investment funds

Investment fundsthey also allow you to invest in a basket of investments. Instead of trading live around the clock, mutual funds settle all trades and re-list once a day after the markets close.

Like ETFs, you can use mutual funds to buy a very diverse basket of investments or a small slice of investments, such as a particular industry.

Collective real estate financing

Real estate crowdfunding is a highly commented investment option. Here are two companies that may offer investments that might interest you.


CeilingIt currently offers two main services. The first allows you to buy rental properties across the country. Personal loans generally don't provide enough money to invest in most of these properties, so investing your personal loan funds isn't really an option.

What might be an option is Roofstock's Roofstock One offering. This allows you to buy shares of a rental property instead of the whole. Only accredited investors can invest inCeilingOne, however. Most people who apply for a personal loan to invest probably do not fall into this category.

Learn more about roofing.


fundraisingis a real estate crowdfunding option that does not require you to be an accredited investor. Instead of allowing you to invest in individual properties, it invests in a portfolio of properties that Fundrise establishes. They have a starter portfolio as well as three other portfolios you can choose from based on your goals.

Unfortunately,fundraisingdisplays their historical annual returns (8.7% to 12.4%) on the front page of their website. These returns are not high enough to allow a significant profit after taking out a personal loan, so it is not a good idea in most cases.

Learn more about fundraising.


In the end, it almost never makes sense to take out a personal loan to invest in the stock market. In rare cases it can be profitable if you are lucky.

Even then, the profit is probably not very large relative to the risk you are taking.

See more information:

  • How to apply for a personal loan
  • When a personal loan makes sense for debt consolidation

Related tools

  • The best investment accounts for new investors
  • The best Robo-Advisors


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