0% Credit Card Investing – Is Borrowing To Invest Wise?

credit card investment

A reader recently emailed me explaining he was considering applying for a 0% interest credit card, maxing out the limit and using the borrowed money to invest into peer to peer lending. He asked me if I thought this was a good idea.

On paper, borrowing money on a credit card or through a loan to invest seems to make sense. Borrow at 0%, invest in peer to peer lending and make a tidy 12%+ return. What could go wrong?

But for me, reality paints a different picture. Between the years of 2005 and 2008, I borrowed over £500,000 to buy a few bits of property and development land. Then came the property crash of 2008 / 2009 where I suffered substantial financial losses, (story on this to come).

Until you’ve suffered the pain of financial loss, you can’t truly appreciate the dark side of risk. Because of my experiences, I’m rather risk averse and would never recommend borrowing money to invest.

People who leverage borrowed money to invest usually disregard the high risk involved. What if something happens in your life and you’re unable to pay the loan company back? What if you lose your job or are unable to work due to illness? What if the peer to peer company you invest in goes out of business? What if there’s a large stock market correction right before the balance of your credit card is due? What if BP spills oil over Skegness beach, tourists stop visiting Skeggy and the confectionary company shares you bought sees a drastic fallout in rock sales….

Financial Thing

You get the idea.

Back in the roaring 1920’s, Americans were borrowing money to invest in the stock market. The high returns looked as if even the most inexperienced investor could make a fortune. People were even taking loans against their homes. They made money for a while but then the stock market crashed. Many people lost their homes and were financially devastated.

When thinking about borrowing money to invest, consider this. If you can borrow £1,000, why not borrow £100,000 or £1m to invest? Most people would consider £1m an uncomfortable amount to borrow. Why? Because of risk.

Now I know someone reading this might be thinking, “But Laurence, I make £200,000 per year so borrowing £10,000 to invest wouldn’t have much of an impact on my finances if disaster struck”. Of course, this goes without saying. If you are flush with money, borrowing to gamble on investments could make sense. You have to consider your own financial situation and make the decisions accordingly.

So should you borrow on credit cards to invest? If you have a very high tolerance for risk and have a high income, you could, but for those conservative types who like to sleep peacefully at night, it’s not something I recommend.

If you want to learn more about peer to peer lending, click here and receive my complimentary Top 5 Peer to Peer Lending Sites Report.

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Disclaimers: I’m not paid by or employed by any of the companies I write about. In most cases I have invested or continue to invest my own money through these companies. The sign up links on this website are referral links. When you sign up for an account through my website, I receive a referral fee directly from the companies, at no cost to you. Your support enables me to continue to operate the Financial Thing website. You can read more about my referral links here.

** This page is for information purposes only and should not be considered investment advice. Opinions expressed in this review are based upon my investing experiences. All information was deemed to be correct at the time of writing. Peer to peer lending contains risks so never invest more than you can afford to lose. **