Jasmine
VIP Contributor
You may obtain a loan to purchase a property, purchase equity, or investing in the stock market, or even mutual funds. If the market is favorable, your property prices will go up and in the mean time you make rental income, likewise, you earn dividends on your stocks, or get return on your investment from your equity or mutual fund investment. You use your profits to repay your loan.
Assume that you borrowed money at an interest rate of 10 percent and used the money to invest in the stock market. You calculated that you will be earning 12 percent return on your investment, or at least 10 percent return that you can use to pay your loan. But what if it never happened? For example, banks can raise the interest rate, or the market might fall and you might no be receiving as much money as you need to pay back your loan. You will be paying more money for loan repayment than you are earning from investment.
Assume that you borrowed money at an interest rate of 10 percent and used the money to invest in the stock market. You calculated that you will be earning 12 percent return on your investment, or at least 10 percent return that you can use to pay your loan. But what if it never happened? For example, banks can raise the interest rate, or the market might fall and you might no be receiving as much money as you need to pay back your loan. You will be paying more money for loan repayment than you are earning from investment.