Borrowing to invest? 8 cases where it makes sense

Many of us think of taking out a loan as taking on another burden. It’s an extra cost we have to assume every month, an additional strain on our personal finances. And it’s true: borrowing costs money! There are, however, several circumstances where taking out a loan is beneficial for your overall personal and family financial situation. Here’s a list of 8 such cases.

1. Student loans

Whether it’s for a Bachelor’s, Master’s or doctorate degree, or any other course you might want to enroll in to improve your market value, education is key for our development (and that of our families and our society) and we often refer to it as an investment. It is usually costly, though, and many people opt for a personal loan to finance their investment.

2. Cancelling debt

Taking out a new loan to repay an old one might sound counterintuitive, but in many circumstances it can have very positive effects on your finances: you have a new term to pay back the money you have borrowed, you can negotiate better rates if the economy has evolved, or you can establish a new repayment plan that is more in line with your current financial situation.

3. Buying a car

Whether it is because you still drive your first car, because a new car is a luxury you think you cannot afford right now or because you don’t think your car will have a lot of value on the market, many people put off investing in a new vehicle. But if you start adding all the costs related to your old car (maintenance, insurance, fuel consumption) and compare them to the cost of a new(er) car –including the purchase price– you might be surprised! A new car (new or used but in very good condition) is an investment you can finance with a personal loan that will pay off in the long run.

4. Renovation

Every house needs a little nip and tuck after a few years. This is another investment we like to postpone because it’s cumbersome, costly and, let’s face it, messy. It turns your life upside down for a few days or weeks. And yet, a loan can improve your accomodation, the value of your house on the market and, if you enhance the energy efficiency of your house, your personal finances.

5. Household appliances

Dishwasher & co., they all have a so-called “service life”. Replacing these appliances can be costly, especially if you acquired them all at the same time (when you moved in) – and they have a tendency to break down simultaneously! In this case, a personal loan can help us avoid uncomfortable situations.

6. Investing in the stock exchange

The idea behind it is to borrow funds to increase the earnings on an investment, much like a broker does. You’ve probably heard the term “financial leverage” (or just plain leverage) before. If you borrow some extra money, you might then have access to certain types of investments with higher yield potential.

7. Emergency funds

We all have (or should have) an emergency fund. But some emergencies you cannot foresee and they might require a bigger financial effort than you had accounted for. And if you’re not capable of refilling your emergency fund quickly enough, instead of using it up you might want to consider a personal loan to bridge the gap.

8. Your happiness

They say “buy experiences, don’t buy things” in order to be happy. Whether this is true or not, is still disputed. But if you work hard, pay your taxes and are financially savvy, why not invest in yourself for once? That trip you always wanted to undertake can be financed – think of all the experiences you will gather!

So there you have it: a personal loan is a financial instrument that, when used wisely, can be a great investment. Be good at money and ask your financial advisor for guidance before borrowing!

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