Financial experts like Peter Schiff, Axel Merk, and Robert Kiyosaki have advocated for investing in gold as a hedge against inflation and for long-term investment purposes.
However, not everyone has the upfront cash to buy gold bars, coins, or invest in gold through exchange-traded funds or mining companies. So, the question arises: Can you use a personal loan to buy gold?
Why Consider a Personal Loan for Gold Purchases?
In the United States, most personal loans allow the borrower to use the funds for any purpose. This means you have the freedom to purchase or invest in gold in any form you see fit.
The key consideration here, as with any financial decision, involves weighing the benefits and drawbacks of using a personal loan to buy gold, which we’ll discuss in detail below.
Several reasons might motivate someone to consider a personal loan for purchasing gold. Here are a few:
- Value Preservation: One of the main reasons gold is favored by some investors is its reputation as a reliable store of value. It’s also seen as a hedge against inflation. Essentially, spending all your money on consumables likely leads to quick depreciation. However, investing a portion or all of a loan in gold could potentially preserve value over the long term.
- Diversification: Investing in gold can diversify an investment portfolio away from exclusively stocks, bonds, and real estate.
- Liquidity: Generally, gold, especially physical gold, is a liquid asset. This means you can easily sell it without much hassle or wait, should you decide to do so.
Is It Feasible to Apply for a Personal Loan to Buy Gold?
Typically, banks don’t offer loans specifically for the purchase of gold. However, you can apply for a general-purpose personal loan and use the proceeds to invest in gold, whether in physical form or otherwise.
Your ability to secure a personal loan depends on several factors, such as:
- Credit score
- Payment history
- Income source
- Debt-to-income ratio (DTI)
Thus, if you have the requisite credit score (at least 550), a solid repayment history, a steady source of income, and a low DTI ratio, it’s likely you could be approved for a personal loan to invest in gold.
Pros and Cons of Using a Personal Loan to Buy Gold
There are several advantages and disadvantages to consider when thinking about using a personal loan to purchase gold. Here are some considerations:
Pros
- Hedge Against Crisis and Inflation: Some financial experts liken buying gold to purchasing insurance. Throughout centuries, the relative value of gold has fluctuated but has always maintained significant purchasing power. Gold is an excellent hedge against inflation as its value is not directly impacted by government currency conditions.
- Liquidity: Unlike real estate or other investment types, gold, especially physical gold, is highly liquid, allowing you to access cash when needed.
Cons
- Price Volatility: While gold has historically maintained value, it’s important to note that its price is subject to daily market fluctuations.
- Loss of Savings Interest: The potential return on gold investments may be significantly lower than the interest rates you’d have to pay on a personal loan.
Considerations for Using a Personal Loan to Purchase Gold
If you decide that purchasing gold with a personal loan is the right choice for you, here are a few points to consider:
- Interest Rates: Securing a relatively low interest rate is crucial when deciding to invest borrowed money in gold. Otherwise, the cost of interest could surpass any potential gains from an increase in gold prices.
- Storage Costs: Storing gold at home carries risks of theft, robbery, or fire. Some banks offer gold storage services, but these come at varying costs.
- Alternative Methods to Invest in Gold: Remember, buying physical gold is not the only way to invest in gold. If you’re not keen on the risks of storing gold at home or paying storage fees, you might consider investing in gold ETFs, which aim to reflect the price changes in gold, or in gold mining companies, which may offer some fixed income through dividends.