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Using a personal loan to invest

08 May 2019

Using a personal loan to invest

Building wealth and creating financial security should be high priorities for every Australian. Yet the expense demands on most household budgets make it hard for many to save enough to take that first step towards investing. One way to start sooner is to apply for a personal loan to use for investing.

Whether it’s to buy shares on the stock market, bonds, invest in a business, or jumping into cryptocurrencies with an unsecured bitcoin loan, a personal loan can help you begin your investment journey quickly.

Why borrow to invest?

A personal loan allows you to start investing or growing your existing investment portfolio sooner. It’s an easy way for new investors to get started, provided they’re comfortable with the risks involved. Should a great investment opportunity arise and you don’t have the savings on hand, a personal loan can mean you don’t miss out on the opportunity. Unlike other types of finance, a personal loan offers the flexibility to manage your repayments to work with your budget and also give you access to redraw funds to reinvest if you like.

What to look for in a personal loan for investing

Keeping your borrowing expenses to a minimum will help your investment keep moving in the right direction. Look for personal loans with:

  • $0 monthly fees. Minimising fees once you’ve got your loan means you can pay it off quicker.
  • Unlimited fee-free transactions. Don’t be charged fees to make extra repayments if you want to pay more off or pay it off sooner.
  • Free redraw. If you’ve paid extra off your loan, check if you can redraw (without any fees) to invest in new opportunities.
  • Flexible repayment options. Find a loan that lets you pay weekly, fortnightly or monthly to suit your budget. This could work well with the rolling returns of your investments

Things to consider

Borrowing to invest isn’t a decision to be taken lightly. There are lots of questions to ask yourself. Always weigh up the investment returns versus the interest rate and the costs of the personal loan. Check what fees are involved, not just the one-off establishment fees, but also if there are any investment related fees like online brokerage.

Investing through the use of a personal loan does have its share of risks, so it could be worthwhile getting independent financial advice to help you make a prudent decision.

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