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  • May 14, 2021
  • Leo

If you ask, what will be the most accurate financial decision one can take? Actually, it will be hard to answer this in one word. Because there are different ways, among which one of them you can choose to fulfil the necessity of your financial need. Investing money is one of the most accurate decisions, which is considered as wise as anything.

What is Investment?

Investment is the only way to secure the future. Based upon the financial need of a person, the term of investment is determined. After visiting a financial advisor, a person can easily identify his need and goal.

Now, these need and goal are like two sides of a single coin. Because the need is something, which decides how long one can invest and based upon that term, a goal can be decided.

Investment does not always seek money because building a house or buying gold can also be a valuable investment. Similarly, buying shares, securities, equities, bonds etc., are also considered a worthy investment. To buy shares or securities, a person needs to have money. Before investment, a person needs to make sure the source of fund is sufficient.

What is a personal loan?

A personal loan is the type of borrowing that can easily and instantly put out all your financial problem. It can be taken to mitigate several financial crises like paying the college fee, planning a family trip, or making the initial payment for buying a property.

These are some common purposes of taking a personal loan. Nowadays, people also apply for a personal loan to solve the crisis of fund while investing.

It is sometimes called no guarantor instant loans, and people find the ease of investment. After the fund credited into the account, he starts looking for a profitable investment. 

Although it sounds beneficial and exciting to make the best use of borrowed money, it has both pros and cons. Let’s look at them.

Pros –

1. Availability of adequate fund:

Whenever a person borrows money for the sake of investment, the problem of inadequacy of fund no longer remains. Instead of taking out money from your savings account or keeping a particular amount of money every month from your salary, or waiving off the family expenses, you have lots of money in hand for investment. With a huge amount in hand, one can easily think about lump sum investment for getting a good return.

2. Keep you away from paying extra tax:

One of the important reason for investment is, it will keep you away from paying extra tax. That is why many people eagerly wish for investment. There are certain investment plans, b which you can enjoy tax benefits to a great extent. So, whenever you go for a good investment, remember it will provide you with a discount too.

3. An additional benefit of investment:

Undoubtedly, a personal loan is associated with interests and processing charges. Moreover, the borrower needs to be ready with the monthly repayment of the loan.

So, investment income will be helpful for you to pay both these part. After investing in profitable shares, you can decide whether you want the profit yearly or quarterly.

After getting the profit out of the investment, it will be easier for you to repay the loan, particularly when you have got loans on benefits. But do not forget that investing in shares is quite risky. So, before choosing a particular company, make sure it is running for profit. 

Cons –

  1. The burden of paying higher interest:

As mentioned earlier, personal loans are provided with a comparatively higher rate of interest. During repayment, the principal and interest both have to be paid. For this reason, a personal loan becomes a burden.

On the other hand, if you have invested the borrowed money only in the share market, there are also chances to make less profit or sometimes no profit. In such a scenario, it becomes difficult to repay the outstanding loan amount.

2. The possibility of negative return:

There is a common saying while it comes to the point of investing in the share market, “Don put all your eggs into one basket”. It is quite right. It is because the basic theory of the share market lies in high-risk, high return. This means the more risk you can take, the chances of return becomes higher.

But it has also been observed that even after taking high risk, an investor lost all his money and nothing returned.

Actually, share markets or other market-related investments are very much volatile. That is why the chances of making a profit become unpredictable.

Besides, if one fails to identify the accurate share and invest without analysing the market status, it will be a major mistake. The investment will no longer be fruitful, and instead of generating profit, it will return only a negative return.

3. Factors to look after before investment –

Hope now it has become transparent to you how investment with borrowed money can cost you badly. But you don’t need to face loss. That is why we suggest taking the decision wisely. Therefore, before taking a loan, you should analyse these factors:

  • Study the rate of interest with which loans are provided by other lenders too.
  • Make sure the payment mode or repayment type provided by the lender suits you.
  • Are you able to take the high risk? If yes, then only go for high risk.

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