So, maybe a crazy idea.

Let's say I take out a personal loan at my credit union with "0" to 4.5% interest with a payment I can afford from my personal income. Repayment over 5 years.

I take the money from that loan,$1000?, and put it into an investment I hold for return of between 6% to 15% dividends and what not.

Is this actually possible to do? Or am I just dreaming? What am I not thinking of?

  • 9
    Of course this is possible. The thing you're not thinking of is that investments/the market can go down and leave you on the hook for the loan.
    – Patrick N
    Commented Aug 19, 2017 at 0:49
  • 2
    Keep in mind that a 6 to 15% yearly dividend does not equal a guaranteed 6 to 15% yearly return, the stock still has to appreciate in price.
    – Koen vd H
    Commented Aug 20, 2017 at 8:59
  • @Koen vd H true but don't most stocks split after they accumulate to being so high priced to allow a lower barrier to entry? Long term this could be advantages. Commented Aug 20, 2017 at 18:51
  • If this is in the US, personal loan interest won't reduce your taxes; whereas interest charged by a broker on a margin account is an investment expense that can offset your income.
    – user662852
    Commented Apr 13, 2018 at 15:03
  • 1
    Why not take the money you'd use to make the loan payments and invest that directly over time? It's less initial capital but it is YOUR money from the start. None of it would be lost to interest paid to the bank or fees. You'd lose none of your time doing loan paperwork either.
    – Freiheit
    Commented Apr 13, 2018 at 15:39

2 Answers 2


This is certainly possible. There are lots of strategies that involve taking out loans to invest. However, they are all high risk strategies.

There's a school district for a major US city that was able to get incredibly favorable loan terms because their repayment was assured by law. They borrowed a bunch of money and put it into a variety of sure things insured by reliable companies like Lehman Brothers. You can figure out the rest.

  • 1
    actually they didn't buy things insured by Lehman, Fannie Mae, Freddie Mac etc. they actually insured bonds issued by those companies. When they defaulted the schools had to pay third parties the insurable value of the bonds. They weren't insured by Lehman, they were insuring Lehman! (sort of)
    – MD-Tech
    Commented Apr 13, 2018 at 16:00
  • @MD-Tech It's really the same thing. By "ensured", I mean that Lehman was required to pay them. I use "insured" to mean a secondary obligation as opposed to a primary one. Commented Apr 18, 2018 at 12:05

For 2017, not only is it possible to do what you propose to do, but you can deduct the interest that you pay on the loan as an Itemized Deduction on Line 14 of Schedule A, but only to the extent of your actual gains from the investment(s), that is, dividends from stocks and mutual funds, interest from bonds etc, not the unrealized gains due to fluctuations in market price of the investments. If these gains are smaller than the interest you paid on the loan, you can choose to include (some or all of) the capital gains from selling assets held for investment or capital gains distributions from mutual funds so that you can deduct all of the investment interest expense, but if you do so, the amount of capital loans thus used is taxed as regular income, that is, it does not qualify for the special rates for capital gains. All this is computed on Form 4952.

Whether this deduction proviso survived the Tax Cut and Jobs Act of 2017 and is still applicable for Tax years 2018 and later is something I don't know.

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