Recently, cryptocurrency has received much media attention, and advertisements urging people to spend money on it are everywhere. While some individuals speculate in the cryptocurrency market, others invest large sums of money.
You might think about investing in cryptocurrencies, given all the hype. For this, you might even think about taking out a personal loan.
Before we discuss this, let’s first take a moment to look at what cryptocurrency is.
What is a Cryptocurrency?
A cryptocurrency is a form of virtual money that can be exchanged. Due to its independence from any one government or other central authority, it appeals to some people.
It contrasts sharply with currencies supported or maintained by governments or banks. More appealing is cryptocurrency’s near-impossibility of counterfeiting. It is, however, incredibly volatile due to its deregulation. Like stocks, cryptocurrencies can experience rapid ups and downs.
Can You Take Out A Personal Loan To Invest in Crypto?
The short answer is yes; you can use a personal loan to buy crypto.
The long answer is… it depends.
If you’re looking to buy cryptocurrency with a personal loan, there are some things you need to think about first.
First and foremost, you’ll need to ensure that your loan is eligible for such purposes—some lenders permit using their loans for crypto purchases. In contrast, others don’t allow it as part of their standard policy. If your lender allows crypto loans, ensure that the crypto in question doesn’t exceed the value of your loan by more than 1%. This will help protect them from potential losses should your crypto holdings’ value drop significantly.
Second, you’ll need to consider how much you plan to invest in cryptocurrency. If all goes well (and we hope it does!), this is money that will be gone forever—so make sure that if all goes badly (and we hope it doesn’t!), you won’t be left without enough money to pay back whatever debt you took out to buy the coins in question.
Finally, cryptocurrency’s value is notoriously volatile, and many factors beyond your control can affect its value. That makes it risky to use as collateral for a loan because if something goes wrong with the investment, you could end up defaulting on the loan—and then having to pay back the full amount of the loan plus all of its fees.
Purchasing Cryptocurrency Involves Risk
You might be able to use a personal loan to purchase cryptocurrency if you can get one, but you should be aware of the risk involved.
Using a personal loan to buy cryptocurrency is comparable to using it to buy stocks you believe will increase in value soon. It’s possible to purchase it at a discount and, after that, sell it when the price reaches a certain level, but there’s also a chance that you’ll lose a ton of money in the process.
If that occurs, you’ll probably find it difficult to repay the loan and be concerned about the interest accruing. You could ruin your credit score severely if you don’t repay the loan.
Buy Cryptocurrency With Caution
Because of its volatility, most financial experts will tell you to exercise caution when dealing with cryptocurrencies. They’ll probably also advise against obtaining a personal loan for this reason.
Unless the terms and conditions specifically state otherwise, you can use a good credit score to obtain a loan and purchase cryptocurrency. But if you do that, you’re gambling.
Consider your cryptocurrency holdings as a small portion of a more diversified portfolio if you want to invest in cryptocurrencies. This strategy is much safer than taking out a personal loan and investing the entire amount in cryptocurrencies.
Conclusion
Investing in cryptocurrencies is never a good reason to take out a personal loan or any other type of loan. Although virtual coins are a popular item and can be quite profitable, the market is highly unstable. If you try to invest money you don’t have in the market; you could get into serious debt.
It’s critical to do your research before investing in cryptocurrencies and only to use funds you can afford to lose if things don’t work out.
Disclaimer: This content does not necessarily represent the views of IWB.