Using your credit card or a personal loan to trade stocks
With a seeming upward trend, you may have been tempted to borrow money from your credit card or even via a personal loan to invest it on the stock market. You should be aware that doing so comes with some real risks. There is no guarantee that you will get out of the investment the same amount that you invested in. You may lose all of your invested money and as such should never invest more than you can afford to lose.
Have you considered whether investing smaller amounts of disposable income over a period of time might provide an alternative way to potentially achieve your goals over the longer term?
- Making more money to pay back a loan is not as easy as it might seem. Investing in stocks doesn’t guarantee that you will achieve a return equal to or even greater than the interest rate that you have locked in to pay for your loan, nor is it guaranteed that you will make a profit on your investment at all. Furthermore, your capital is at risk, you may lose all or part of your initial capital/investment.
- You are likely to have to service your loan by making regular repayments. Investing your money means it is tied up in the stocks you have bought and it is no longer sitting in your account as cash. If this money isn’t available to go towards your monthly loan repayments, you will need to meet these obligations from other sources. Loan terms usually have strict repayment schedules, and if you can’t pay, you may not have any other option but to sell your investments at a bad time to repay your debt or possibly incur increased charges and penalties.
If you miss any of your loan repayments this could have a real negative effect on your credit rating and access to credit in the future.
There are additional risks that apply to using your credit card or a personal loan to trade stocks such as stock market risks and charges and taxes. You can read more on these here.
Introduction to stock trading
- What is a stock?
- Where do stocks come from?
- What is stock ownership?
- Why do people buy stocks?
- How could you lose money from buying stocks?
- What are stock markets?
- What is a stock broker?
- What is a stock price?
- What is a bid-offer spread?
- What are stock charts?
- What is commission?
- What are bullish vs bearish markets?
- What is technical analysis?
- What is fundamental analysis?
- What are analyst recommendations?
- What are stock financials?
- What is EPS (earnings per share)?
- What is a P/E ratio (Price-to-Earnings)?
- What is a P/CF ratio (Price-to-Cashflow)?
- What is ROE (Return on Equity)?
- What is Market Sentiment?
- What are Market Sentiment Indicators?
- What is the VIX?
- How does News and Social Media impact stocks?