For most credit card users, one of the most common use cases is to buy merchandise now and pay for it at a later date, say a month later. Shopping online or offline with the aid of a credit card without having to worry over the price tag is what defines the key utility of credit card.
Meanwhile, not many card users are aware that one can use this financial instrument for the purpose of investing as well.
For instance, you may want to invest ₹2 lakh in stock markets on an urgent basis because of the attractive valuations. And if you are short of liquidity during such time, you may use your credit card to invest directly or even raise a loan against your credit limit to invest ₹2 lakh.
Although raising personal loan or using credit card for investing is not considered sensible, it may be explored as a viable option in some circumstances by a set of investors.
We list out some of the key ways to use credit card for the purpose of investing:
Using credit card for investing
Buy directly: Some brokerages enable investors to buy stocks using a credit card. This may even involve a fee. It’s vital to examine the terms and make sure that you can clear the card balance quickly to avoid high interest.
Rewards and points: It is a common phenomenon to use credit cards that offer rewards or cashback on spending. The credit card users can use those rewards to invest in stocks or ETFs. Although it doesn’t entail direct borrowing, it can be a way to use credit cards for investing.
Short-term financing: If you are sure of a stock to spike in the near future, you may use the credit card for the purpose of investment. However, this is quite risky and speculative.
Avoiding high balances: If you choose to use credit for investing, ensure you can pay off the balance in full to avoid interest that could negate any investment gains.
Cash advance: You could also take a cash advance from your credit card and use the money to invest. However, this typically comes with high fees and interest rates which start accruing immediately, thus rendering it an expensive option.
Key points to consider
High interest rates: It is worth noting that the interest charged on credit card loan can outweigh any potential returns.
Risk of debt: Using credit for investments can even lead to debt, especially in cases where the investment doesn’t perform as expected.
Volatility: Investing in stocks carries inherent risks, and using borrowed money raises that risk.
Always consider your financial situation and consult with a financial advisor before using credit cards for investing.