Borrowing money is very easy these days. You can also borrow a large amount for basically everything. Usually money is borrowed because the budget is too limited to make a purchase.
Many borrow money to buy a house, a car, or to study. These are the most common forms of loans on top of personal loans. In such cases, a loan can be a good investment. However, there are also other reasons for which you want to apply for a loan. The intention is to invest. That is possible with a personal loan, no problem!
Why borrow money for shares?
Borrowing a certain amount of money and then investing it in shares can be a risky business. After all, there is a certain risk involved. After all, you are not sure in advance whether this loan is profitable and whether you really have anything left over. When the cost of the loan is lower than the final return on the investment, it means that the loan has been a good investment.
This form of borrowing is quite risky. After all, the stock market can be subject to enormous fluctuations, and profits can drop sharply overnight. That is why borrowing money for shares is often more for specialists and experienced investors. It is important to have enough information when you want to buy shares. However, shares can deliver quite a bit. For example, the return on shares is much higher than on bonds or savings accounts.
How does that work?
You can of course use your savings and invest in shares. However, many people do not have a huge savings account or prefer to use this amount for something else. Then it is of course ideal if you can simply borrow money from the bank to invest in shares. For example, you can take out a personal loan, in which you borrow a certain amount from the bank. You can invest this amount at your own discretion in something without having to account for it. You must of course repay this amount. It is also possible to borrow money from the bank with the purchased securities as collateral. Of course, the bank initially assumes that you will simply repay the loan, but should this not work, because your investments turn out wrong and you will not make a profit,
The interest on loans is quite low and the shares are actually only rising. Often such an investment yields a lot. Much more than the interest you have to pay for your loan. For example, if you apply for a loan for 10,000 euros, this will cost you an average of 600 euros interest per year at an interest rate of 6%. You invest this amount in shares that you keep for one year. When the shares yield 10% in that year, you can sell the shares for 1000 euros more than you originally bought them for. You will then make a profit of 400 euros.