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Personal Loans

Personal Loans for Investments

Investing your money is one of the best ways to grow wealth. But how do you grow your wealth if you don’t have anything to invest? If you find a hot, limited-time-only investment opportunity or just can’t muster the funds, you might wonder whether you can take out a personal loan for investing. 

We don’t recommend this in most cases due to the risk and the difficulty in making a profit after you pay interest on the loan. However, it might be an option in some instances.  

When can you use a personal loan for investments?

Personal loans have a wide range of uses, but they have limits. Most personal loan lenders prohibit using the funds for the following:

  • Illegal activities
  • Gambling
  • Postsecondary education
  • Investing and business purposes

“Securities” is the common term lenders use to prohibit investments in their contracts. This refers to traditional investments, such as stocks, bonds, and index funds. The world of investments is broad, however, and you might be able to use your personal loan funds for other purposes. 

For example, if a lender prohibits using the loan funds to buy securities, you may still be able to use that money to buy gold or silver or invest in a career boot camp. If you’re unsure, it’s best to check with your lender. 

Most lenders don’t ask for receipts when you take out a personal loan. If you used the funds to invest in cryptocurrency or kick-start your IRA, for example, it’s unlikely your lender would find out. 

However, when you sign the loan agreement, you’re holding yourself to a legal agreement. If you break the terms of the contract, your lender can take action against you. (The action it can take is written into the contract.) 

Pros and cons of using personal loans to invest

It’s crucial to weigh the pros and cons any time you take out a loan, especially when considering a personal loan for investing. 

Keep the following in mind.


  • Potential to earn returns that surpass what you’ll pay in interest to borrow the loan. 

  • Participate in an investment opportunity sooner.


  • Interest you pay on loans lowers your realized investment returns.

  • You could owe more if your investments fail.

  • Challenging to find lenders that will allow using loan funds for investments.

  • Can harm your credit if you pay late or default on your loan.

  • Personal loan rates may be higher than investment returns, especially if you have bad credit.

Should you use a personal loan to invest?

Most financial experts advise against using personal loans for investments, and for good reason: It’s just too risky. 

You’d need to earn a sufficient rate of return on your investment to overcome the interest rate you’re paying on the personal loan. If you don’t have excellent credit and qualify for the lowest rates, this math dance can become more wobbly. 

Market returns don’t have a built-in guarantee, so this strategy can put you at risk of losing more than you began with. Focus on building a firm foundation first. The market will always be there, and other opportunities will arise. 

What if you can make more on the investment than the interest you’ll pay on the loan?

To overcome the interest-rate hurdle, you might be tempted to choose the highest-yielding investments available. But those tend to be the riskiest—boosting the odds that your investment could fail in a big way. That can lead to you being upside-down on your loan, owing more than the investment is worth. 

Another significant hurdle is lender availability. Since only select lenders allow you to use loan funds for investing, you can’t shop around for the best personal loan rates as much as for more common loan uses, such as debt consolidation.

You’ll also need to consider your ability to repay the loan. If your income drops because you lose your job, or your expenses go up because you must pay for an emergency, taking out a loan for investments (or anything else, for that matter) puts you more at risk of defaulting on your loan.

We don’t recommend using a personal loan for investing unless you meet these five criteria:

  • You have a solid, stable income and an excellent credit score.
  • You aren’t investing money you can’t afford to lose or pay back.
  • You can find a lender that allows you to use loan funds for investing.
  • You can get approved for personal loan rates well below what you expect to earn.
  • You have a high risk tolerance and a healthy emergency fund.