Credello: Should You Use a Personal Loan to Buy Crypto?

NEW YORK, March 7, 2022 (Newswire.com) - Cryptocurrency has been in the news a lot lately and there's no shortage of ads encouraging people to invest in it. Some people are dabbling in the crypto market, while others are sinking significant amounts of money into it.

With all this hype, you might consider investing in crypto. And you may even consider getting a personal loan for this purpose. 

Before you do, though, let's take some time to talk about what crypto is and whether getting a personal loan so you can buy some makes sense.

What is Cryptocurrency?

Before you start looking into secured loan vs. unsecured loan options to buy cryptocurrency, you should know precisely what it is. A cryptocurrency is a digital currency that can be used as an exchange medium. Some people like it because it's a currency that isn't pinned to any government or central authority.

This puts it in stark contrast to currencies that governments or banks maintain or uphold. Cryptocurrency is also appealing because it's nearly impossible to counterfeit. However, because it's deregulated, it's also extremely volatile. Crypto, much like stocks, can go up or down dramatically in a short time.

Can You Use a Personal Loan to Buy Crypto?

The short answer as to whether you can use a personal loan to buy crypto is yes, you can. Just because you can, though, doesn't necessarily mean that you should.

You can use personal loans for all kinds of things. You might use the money from a personal loan to pay for a wedding, funeral, home improvements, etc. In many instances, you don't need to tell the lending entity how you will use the money. In that respect, a personal loan is different from a business loan, where a lending entity will probably want you to submit a business plan.

If you have a good credit score, getting a personal loan isn't that difficult. If your credit score indicates that you're likely to pay back that loan, you will probably have several lending entities that are willing to offer you one. 

If you like, you can then use that money to buy crypto. There are occasionally exceptions to what you can use the borrowed funds for, though, so you'll need to read the loan's fine print before you commit to it if you intend to use it to buy crypto.

Buying Crypto Carries Inherent Risk

If you're able to secure a personal loan, you may be able to use it to buy crypto, but you should understand the inherent risk that goes along with that. 

Using a personal loan to purchase crypto is similar to using it to buy a stock that you think will go up in price sometime soon. You might be able to buy it cheaply and then sell it when it hits a certain price, but it's just as possible you'll lose a bundle of money on the deal.

If that happens, you're probably going to have a hard time paying back the loan, and you'll have to worry about the interest piling up as well. If you default on the loan, you can severely damage your credit score.

Tread Cautiously When Buying Crypto

Most financial experts would advise you to be careful when trading or investing in crypto because of its volatility. They will also probably tell you to avoid getting a personal loan for this purpose.

If you have a solid credit score, you can use it to get a loan and buy crypto unless the fine print says you can't. If you do this, though, you're essentially gambling. 

If you want to invest in crypto, you should consider your holdings a small part of a more diversified portfolio. This is a much safer approach than taking out a personal loan and investing it all in cryptocurrency.  

Source: Credello