Investment via credit card: Is it risk or reward?

There is nothing surprising about it. For the first time, a thought came to my mind, why not buy stocks using my credit card. I instantly tried to find out it on the internet. Unfortunately, we cannot do that. The credit card company provides you with a credit limit, which you can use to purchase groceries from the store, pay utility bills, rent, movie tickets, and even flight tickets. Not only that, you can also purchase numerous items through online platforms using a credit card.

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After bill generation, Lenders allow you 15 to 20 days to repay due amount. On the failure of repayment, they also levy a hefty penalty and interest on the outstanding bill. A good thing is that the credit card companies also provide you with some rewards on every purchase. While credit cards carry annual charges, few cards come with no annual fees. I have been using a credit card for seven months and repaying the bill on time. It attracts annual charge around $6 and 18% GST extra.

If you make repayment on time, it is a great product for you. With such a good financial tool, anyone can think to use it for buying stocks. But the question is, can you purchase stocks through a credit card? We will further know it in this article.

Is it possible to buy stocks using credit card?

No, it is not possible. You cannot directly purchase stocks using a credit card. For that, you need to deposit money to a trading account through bank. And then you can buy stocks. The Securities and Exchange Board of India (SEBI) has stated that investors cannot make any type of investment using a credit card. This step has been taken to ensure the safety of both lenders and borrowers from losses. In India, only 20% of total users pay credit card debt on time.

If borrowers buy stocks using credit card and failed to repay the outstanding amount on time, they will be levied heavy penalties and interest on debt. In this scenario, borrowers often get into debt cycle and pay high rate of interest and later go for settlement. Their card may be canceled by lenders. I also thought to leverage this option, but later I found that it is not possible. Trading company doesn’t provide a option to buy stocks with credit card. I remember last time I bought shares with the money deposited via UPI. Recently, rupay credit card facilitate users to add their card to online payment platform and pay for their groceries and other utility bills using UPI pin. I don’t know if they allow investors to deposit cash to their trading account using this facility.

Risks involved in buying stocks using a credit card

Investment in stock market is subject to risk, whether they are investors or credit card issuers both can face credit issues. So, let investors buy shares with credit card is not a good idea. If they invest in any sort of market instruments with credit card and fail to repay the debt on time, it will increase their financial liabilities. Think about beginners. They generally don’t have sufficient knowledge about how stock market works. How the price of stocks fluctuates. What factors effects their values. Ultimately they make loss. In this case investment using credit card is not a good option. Their financial liabilities will increase.

However, investing with credit card already shows investors don’t have enough cashflow. In that case if they make loss and fail to repay the outstanding bill, both parties will face trouble. So, investors should always buy shares with their own money, otherwise they should wait for right time.

Possibility of falling into debt cycle increases, if an investor buy shares using his credit card and make loss on his investment. he may fail to repay the debt in lack of enough cash, further which may attract heavy penalties and interest.

However, investing with credit card in India is not allowed. Yet people purchase several other things using credit card and most of them get into debt cycle due to non-payment of outstanding bill on time.

Legal consequences

In India, investing in stocks using credit card is not possible as Securities and Exchange board of India has already banned this exercise. Not only that, non of trading platforms allows this facilities. Investors can’t even try to purchase shares with credit card. However, they may withdraw cash using credit card to invest in stock market which also incurs heavy penalties and interest. I don’t think they will try to use this option.

Conclusion

If you want invest in stock market, use your savings or surplus fund. If you don’t have enough cash, stop participating in stock market. You first earn money and make your regular habit to save from there. Start investing in stock market when you will have enough cash in your savings.

You can purchase other things with credit card and earn more rewards which later you can redeemed in vouchers. If you repay the debt on time, your credit score will increase which may help you avail more loans in future.

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Posted Using LeoFinance Alpha