The stock market has become increasingly popular in recent times for three major reasons: A) easy accessibility through the internet and technology, B) its potential to create wealth, and C) the fear of missing out (FOMO) induced by social media channels. People are now more informed about the market in their search for good wealth-building opportunities. What should you do when you uncover a promising investment opportunity but lack the capital to invest? Think of a situation where you have to invest in a large-cap company with higher stock prices. Naturally, more money will be needed to acquire a decent number of stocks. This is when instant personal loans offer quick access to funds for investing. But the question is: Is it the right thing to do? Should you take a personal loan to invest in the stock market?
Personal loans have no end-use restrictions and are easily available with minimal paperwork. They offer flexible repayment options. However, stock market volatility can not be overlooked. While some people suggest this strategy, others highlight the cons. This blog will bring you more clarity on using a personal loan for stock trading.
What is a Personal Loan for Stock Trading?
Personal loans are unsecured loans that can be obtained without requiring collateral, a guarantor, or any other form of security. They are simple funding options that can be helpful in times of financial emergencies, such as unforeseen medical bills, unplanned travel expenses, or unexpected repair costs. These are easily accessible funding options to cover various financial needs. The best part is that a personal loan can be repaid with terms and conditions. Stashfin approves the loan within minutes of the application based on the applicant’s credit history and income profile. The interest rate is also decided based on the applicant’s repayment capacity and other factors.
A personal loan for stock trading involves borrowing funds to invest in potentially stable stocks, ideally after thorough research. There may be a possibility of significant financial gains, along with the opportunity to repay the principal amount.
How Does a Personal Loan Work for Stock Market Investment?
Using a personal loan to invest in stock trading is a good way to maximize profits. A bigger investment in promising stocks reaps bigger profits. A personal loan can help in situations where you are confident about an investment but lack the necessary funds to make it. However, it is crucial to be prudent when borrowing and investing. The share market is a highly volatile space, and one wrong investment can lead to a huge financial burden. Therefore, it is advisable to seek help from investment advisors or carefully evaluate the ROI of an investment.
The next question is, how does it all work?
Firstly, download the Stashfin app and register. Fill out an application form and provide your details, such as your Aadhaar card, PAN card, and employment details. Verify your mobile number with an OTP. You may also need to provide your bank statements, salary slips, and income tax returns. This helps StashFin access your creditworthiness. After the application is submitted, the lender reviews the applicant’s credit score and credit history to assess the risk of default and determine the loan interest rates.
Secondly, if your application is approved, you will receive the loan agreement outlining the loan amount, interest rate, repayment tenure, and other terms and conditions. Once you accept the agreement, the loan amount will be disbursed to your bank account.
Thirdly, you may use these funds to invest via your chosen stock trading platform. Here comes the main part – deciding which stocks to invest in. Do not take this step without thoroughly researching the company’s positioning, analysing market trends, and knowing your risk tolerance. After investing, closely monitor the performance of your investment.
Lastly, when you earn returns on your investments, you can repay the loan through EMIs or repay it as early as possible, without incurring any foreclosure charges or discrepancies.
Many lenders penalize the early repayment of a personal loan if you wish to pay before the agreed-upon tenure. But with Stashfin, we have a policy that there are no foreclosure charges on early loan closure. This is an advantage in the context of using a personal loan for stock market investment. If your investments perform well and you have the funds to repay the loan principal earlier than scheduled, you can do so without having to pay any additional charges with Stashfin. This saves you a significant amount of interest, which would otherwise make a personal loan costly. Thus, if you are very careful about your risk appetite and the market situation, this strategy can be a fantastic move!
Who Can Apply for a Personal Loan to Invest in the Stock Market?
If you know the art of responsible borrowing and are confident about your market research, then you can apply for a personal loan with Stashfin to invest in the stock market. The following are the eligibility criteria:
- You must be a citizen of India.
- Your age must be between 21 and 60 years.
- You must have a steady source of income (salary or being self-employed).
- You must have an active bank account.
- There must be a well-maintained, basic credit profile (preferably no major defaults).
Even with a limited credit history, the borrower can take out a personal loan with Stashfin based on their income and risk profile.
Pros and Cons of Using a Personal Loan for Stock Market Investment
Using a personal loan to trade stocks can be a great way to earn profits, especially if the market goes up. At the same time, it also carries a risk of big losses and puts you under pressure to repay the loan, no matter whether your investments turn positive or negative. Therefore, it is essential to consider both the advantages and disadvantages of utilising a personal loan to invest in stocks.
The Advantages:
- If you get the funds needed to invest in a hot-selling (also promising) stock at the right time, you have a chance of earning a good profit from your investment.
- Obtaining a personal loan enables you to invest a larger amount, potentially yielding higher returns.
- It’s not necessary that you always have funds available. But at times, when the market is yielding good returns, you do not have to step back due to a lack of funds. A quick personal loan comes to your rescue.
- With Stashfin, you can simply repay the loan early without any foreclosure charges or unnecessary formalities.
The Disadvantages:
- The unpredictable nature of the stock market presents a significant risk. The value of your investments can fluctuate—sometimes sharply. Therefore, it is important to assess your risk tolerance before taking this step.
- Personal loans come with regular interest payments, which are recurring costs that may reduce your potential return on investment (ROI) or even result in financial losses.
- If your investments underperform, then you might also fall into a debt trap.
- Taking a personal loan to invest in the stock market is generally a high-risk strategy and is not advised for beginners.
Borrowing money to invest can increase financial risk. Therefore, such decisions should be based on careful research, not emotion.
Best Strategies to Use a Personal Loan for Stock Trading Wisely
Using a personal loan to invest in the stock market can either be a smart move or a poor decision, depending on the strategies adopted to execute it. Here are some of the best tips to remember:
- You must consider taking a personal loan to invest in the stock market if you have a good credit score. A good credit score gets you a personal loan at low-interest rates, which means there will be a decrease in the interest burden on ROI.
- The applicant must check the terms and interest rates of the lender to ensure their inquiry doesn’t result in a hard check on their credit report. One must ensure that there are no end-use restrictions on the loan amount and also verify loan charges, monthly EMIs, and loan tenures to make a well-informed decision.
- Borrowing money for stock trading is risky. However, you can mitigate the risk through good research and in-depth analysis. Identifying the stock’s potential trends and past performance can provide an idea of potential returns and deliver a profit.
Stashfin offers collateral-free personal loans for the stock market to make it less risky for you. However, you must stay vigilant and aware of the stocks you plan to invest in to avoid any losses.
Risks You Must Know Before Using Borrowed Money in the Stock Market
Borrowing money to invest in the right stocks is not always a bad idea—it can lead to either gains or losses. Thus, here are the risks that you must be aware of:
- The borrower is obligated to pay interest on the personal loan, whether or not the stock market investment yields profits.
- If your investments underperform, repaying the loan could become difficult and may push you into a cycle of debt.
- An unexpected drop in the stock market due to any external factor might impact your ability to repay the loan amount.
- Some lenders may charge additional fees for early repayment, especially if you’re forced to sell investments at a loss.
Conclusion
Taking risks is never a mistake, but taking uncalculated risks might have lasting effects. No matter how appealing taking a personal loan to invest in the stock market may appear, you must analyze and do your homework before proceeding with the strategy. Stashfin can be a quick source of cash available online, with no collateral requirement. We review the applicant’s credit score and monthly income to determine whether to approve the loan and to establish the interest rate.
We process these loans quickly and disburse the amount instantly after approval. So that when you are super sure, nothing stops you from making the right move!
Frequently Asked Questions:
1. Can I use a personal loan for stock trading?
Taking a personal loan to invest in the stock market can be an instant help, but you must weigh the risks carefully. It is necessary to realise that the EMI we pay on our personal loan will be a fixed cost, whereas the returns we might earn from the investment will be variable. Thus, if you have a backup plan for loan repayment and you have done enough research on the investment, you can use a personal loan for stock trading.
2. How much loan is safe for trading?
There is no standard safe amount fixed for trading with a loan amount. It depends on your risk tolerance, repayment capacity, trading strategy, and market conditions.
3. What if I can’t repay the loan after a loss?
If you come to a situation where you are unable to repay your loan, you must speak with your lender and explain your situation. They might suggest a way out or options, such as loan restructuring, payment deferrals, or forbearance, to help manage your debt. If you’re unable to reach an agreement with your lender, you may need to consider legal options or bankruptcy.
4. Any financial benefits of using loans for trading?
A loan can give you cash to buy more stocks or diversify your investment portfolio to help you earn bigger returns.
5. Do lenders offer loans for stock traders?
Many lenders offer unsecured loans with no end-use restrictions. The lender does not require you to pledge security, and you can repay the loan through Equated Monthly Installments, as decided based on your credit score.