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Should You Use Personal Loan to Fund your Investments?

· Personal Loan,Finance

In the past few years, the number of lenders including financial institutions such as NBFCs (Non-Banking Financial Companies) have gone up in recent times. As such, an increasing number of investors these days are resorting to making use of unsecured personal loans to invest in equity funds and IPOs (Initial Public Offers), earn a profit and then repay back the loan. This helps them in earning a substantial return against their investment.

Should You Fund your Investment?

The short answer is yes, but, before that, there are a few things you need to take care of. To begin with, the money should not be put in an investment scheme which will mature after your credit is due. Another aspect to consider is whether the return on the investment will be higher than the credit. If the benchmark return shows returns of 13% every year, then you will end up earning 24% on your portfolio in the future. 

If you want, then you can make use of borrowed money i.e personal loan, for the purpose of investment, then they are the best options. This is because they come with various features and benefits which aid in earning the highest. Further, financial institutions offer flexible tenors which ease the burden on your finances and rules out the possibility of losing out an asset in case you are unable to pay on time.

Things to Check

Before you set off to apply for a personal loan for the purpose of investing them in funds, there are few precautions which you must bear in mind, a few of which are as follows -

Try and have an alternative source of income. This is because regularly withdrawing from the investment funds to repay back the loan can turn out to be detrimental in the long run.

The investment plans should be carefully chosen and should of 3 to 4 years. This is because many times they come with stock options which are strong and thus you do not have to pay for the short-term capital gains.

You must ensure that you opt for a personal loan which offers the lowest interest rates so as to not strain your finances during the repayment period. Further, you can also make use of a online personal loan calculator to check the installments which you need to pay for a given amount of loan.

 

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