Borrowing from the bank to invest on the market?

Question

I heard that bank interest rates are extremely low at the moment. Would a bank lend me money without me telling them the reason I need this money, if I have a good credit history? My idea would be to borrow money from the bank at a low interest rate and invest it in the stock market.

I figure they probably don't, but in theory couldn't you just say you need to borrow $20,000 to buy a car, but instead put that money into stocks?

Answer 1

First, you can't repurpose a loan, if you took out a car loan, you have to buy a car with it because the car loan is secured by the car as collateral and indeed a car loan is applied for a specific car purchase, the money goes straight to the car dealer not to you to decide how to use the money, the car loan is even specific to the car's VIN. There are people who repurpose student loans into investment but that too is fraudulent as the loan is for your education and your living expenses, the only way that it could be repurposed is if you were fraudulent in your claims of needing the money for tuition and living expenses. If you could get a personal loan or a home equity loan then that could be used however you see fit and that could be used for investing. But this is a really expensive way to get leverage on your investments.



A much better way is to accumulate a substantial amount in your brokerage account and then apply for margin on the account. Then you can borrow against the equity in your account. The interest calculations is based on a daily calculation of your equity so as long as you are conservative in the amount of leverage that you use, you may not pay any interest at all. You can also withdraw from margin in cash for whatever purpose you desire such as purchasing a car and the resulting interest rate will be much much lower than a bank loan of any kind. The key is to build up that equity first.



Leverage places more of your net worth at risk and can be beneficial when investing but it can also turn good investments into bad investments if you are not careful. You need to have a good understanding of risk management if you are going to use leverage as part of your investment strategy. In general margin is more valuable to you when you haven't used it yet as it enhances the liquidity of your assets and it is available for use.

Answer 2

Seriously bad idea. The stock market is a fiction and volatile as all get-out to begin with. No bank will lend you money to play the stock market with. The reason they will lend you money for a car is because that loan has collateral (the car) they can take if you don't keep up the payments.



If you have a little money to invest, head down to your local coin/bullion dealer and buy some silver bullion. That'll beat the heck out of any stocks right now.

Answer 3

I tried that once. My credit card company almost insisted that I take $20,000 at 0% interest for a $75 max balance transfer fee. I should have just put it into money market which was paying about 5% at the time. Instead I invested it, and one stock slipped 30% where it sat all summer. I sold the stock a week before the company was bought out at a 30% stock premium.



In the end I only lost $2400.00, which offset the tax I would have had to pay when I started gradually doing IRA to Roth IRA conversions.

Answer 4

Not only is it a bad idea, it would be considered a stupid thing to do AND more importantly it;s illegal



When a bank lends you money to buy a car, they hold the title to the car until the loan is paid off, banks are not stupid



According to Federal Reserve regulations it is illegal to borrow money by providing the lender incorrect and/or misleading information. If a lending institution determines that a loan application was not correct they have the right to call the loan.



If you borrow money, buy securities and the value of the security drops, you have gotten yourself in a real bind by having a debt you can not pay off.



To answer you question directly - what you want to do is not only stupid but illegal

Answer 5

I don't know why everyone thinks that borrowing money to invest is such a bad idea. That's just leverage and is pretty much a staple of finance.



Anyway, you can borrow collateralized money (like a home equity loan) from the bank without telling them what you are going to do with it. They don't care anyway. Personal loans without collateral are not cheap so the "extremely low" part of your question isn't true. Anyway, I think there are all kinds of reasons to do things like take a home equity loan to invest. Not sure I would at the moment, but great fortunes have been made using leverage.

Answer 6

Not a good idea stock market first rule by me is that never invest in stock market excess money which you have.

Answer 7

Personal loan rates start at 16.99% and this is for people with excellent credit

If a secured loan with collateral - rate will be lower

Personal loans are extremely hard to get - and yes - they will ask.

If you lie, you are committing bank fraud and it can land you in jail

Answer 8

Borrowing money to invest is not a smart idea!!!

Answer 9

Most will want collateral for the loan. For a car loan they will put their name on the title as having a lean on the car. You might get a personal loan from the bank perhaps but the interest rate might be higher than you might like.

Answer 10

Bad, bad idea. There's absolutely no guarantee that you're going to make money in the stock market and if you lose it then you're really in a hole.

Answer 11

Some good answers already for this