Topic: Taking loan during high inflation? - page 8. (Read 979 times)

Borrowing and mortgaging with our own assets is really dangerous in the current context. I think the interest rates offered by banks or financial institutions are making it possible for us to hold money to go out to other financial sectors. But is such a risk worth it when we are witnessing a bad economic situation like this? People are talking about ways to make money, and many people are also willing to take out mortgage assets to participate in investment channels. I cannot imagine why they would engage in such disguised ways as gambling. They should not be satisfied with the present life and be grateful for it, but try to see the illusory developments of wealth that will only make them deeper into misery with the current financial spiral.

Your friend has told you some schoolbook advise,that doesn't always work. Schoolbooks can be wrong sometimes.
Inflation can be good for the borrowers,but only if the borrowers manage to use the money they have borrowed in a smart way.
Buying BTC with a loan is an extremely risky decision.I don't recommend newbies to do this.Bying real estate with a loan is OK,but the value of the real estate property depends of the location.If the location is shitty,the price of the real estate won't grow in the future.
However,I don't think that the big western central banks would increase the interest rates at levels that are sufficient to stop the inflation.
In the near future,the inflation rates will be higher than the interest rates,which means that borrowing money would be beneficial for the borrowers(if they use those money to make some smart investments).

What is your teacher or professor friend's reason/s in arguing that it is good to take a loan during high inflation? I think it is better to borrow money while high inflation is still predicted or expected rather than borrow it in the middle of high inflation with high interest rates.

Are you sure this is what he is actually teaching? But there must be a lot of factors involved here. It is not just plain borrowing during the time of high inflation that is recommended.

Basically, during high inflation, the value of money is decreasing and the prices are increasing. That means borrowing money during the time of high inflation means the value of the money borrowed is low and the prices of goods including gold and other assets are high. That doesn't sound a nice idea.

The Luna/UST fiasco was an anomaly.  Those people betted on altcoins and got burned because they were not investing, they were gambling. Not that I would advocate someone take a loan out to gamble on the market, but there are some ways where you might turn a profit that don't include attempting to stake some garbage algorithmic coin that is created from thin air.

OP, depending on the terms of the loan you would probably be able to turn a profit depending on the market and investment but lenders aren't ignorant to the idea of receiving less money than they loaned out with high inflationary periods. It'd be tough to get a good rate unless you predict the market.

It will depends on my risk management.

As you said if we look from the chart taking a loan during high inflation could be profitable. But real estate and stock on your countries wouldn't profitable since most people will save their money and only use for important stuff e.g. food. Gold isn't really recommendable since it's perform bad in the current year. Bitcoin, real estate and stock outside of your countries might be good choice. Make sure the high inflation only happen on your countries and not in general.

When its inflation then the value of money is less so how can you say that it is profitable? Probably the value of real estate will be higher that time but the chances of liquidity is less so you can say that you can pay the mortgage with profits from real estate returns. And also for business it is kind of risky since the circulation of money will be less due to insufficient money in the hands of people so unless the business fall under necessary needs of people then it is going to be tough to pay it back.

Unless it’s one of those 0% car loans then most likely the interest rate will be too high anyways. Also it’s crazy to borrow money to invest.

Go on the Luna Reddit and read some of those posts. People borrowed money to buy Luna or to stake UST and now they are ruined and need to pay back all that debt.

Never borrow money to invest.

Average loan interest rate start from 5% to 25% depends on the your credit scores too, in other hands average inflation on some countries around 1-2% per year except they're faced high inflation >3%. Increase of money supply is the most reason why inflation happen, banks will increase their saving interest in order to attract people to save their money. Taking a loan during high inflation is just making the situation worst!

The thing is the loan interest is really high, can you guarantee your investment return will higher than your loan interest? Average Gold return only around 1-5% per year, Real Estate you need a lot money to invest, Bitcoin? You may earn good APY due to high volatility, but you could loss more too. I'd always suggest, if you don't have enough money to invest moreover during high inflation, just don't invest. You should read there are some investors commits suicide because they're invest on LUNA.

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[1] https://www.bankrate.com/loans/personal-loans/average-personal-loan-rates/

I can agree if it is real estate because they increase their value thru time but others, you need to assess the situation first. Also, make sure you have the capability to pay on the agreed timeline. Otherwise, you may incur high fees just because you have late payments. Anyway, this for me depends on the person, how he look at his financial conditions in the future. Can he afford to take the loan? Because if not, better stay within your means.

Taking loan is good when you know that the investment will bring profit and the time required for the same. With cryptocurrencies this isn't possible, because we know our investment will bring profit, but the time required for the same is unknown. There are successful people who have taken loans and turned themselves successful in cryptocurrency investment. Everyone can't be the same, and when we think of loans we need to think about the interest repayment. This means atleast the interest needs to be got out of the Investment, so that the capital profiting will help in the long term.

Taking the loan as a minor cost is effective, liquidity is key I agree.  It becomes dangerous when you cannot service the loan for various reasons, inflation does lead to economic loss and industry contraction and failure.
      A quick take on why this is quite certain is perhaps consider 'Just in time' that idea of order flow and parts provided perfectly and it allows lower cost production.  Now also consider unstable currency, without the ability to fix value and cost known of parts this perfect balance breaks down and production becomes impaired slightly.   Across entire countries inflation can destroy business and unemployment can easily rise beyond expectations.

Real estate is the most genuine reason to borrow, if its the primary residence and its used everyday its not so great a risk as you now have no rental costs.  Its a justified cost to the loan at that point, to speculate on gold is far more risky to do as the market price is not always clear.    Commodities at any time can half in price this is their true nature and volatility and even Gold can do this though its stable over decades and centuries most of us cant wait this long to get the money back.
   Most would lack utility to borrowing and incurring costs to own Gold, unless you can shape the gold to make rings perhaps most wont.   Im not against gold at all, it will likely rise but it has no yield just holding this elemental rock in fact there is some cost of insurance maybe.   The ideal to me is to fix your interest rate cost to the loan, then if economic factors alter and rates rise you will remain intact in your original calculations.    I tried to tell my friend this, fix your mortgage rate cost so you know the future but most wont accept advice like that and its a personal matter; its never simple unfortunately but I agree with the premise OP

You actually have answered the question yourself. It is true that taking a loan for crypto investment isn't advisable. Why? Not only because we will be stressed, but it is also related to the high risk in crypto investment. Since the high risk in crypto investment, we are better to avoid taking a loan, just invest with our extra money. There is no guarantee for profits in crypto investment whether in the bearish or bullish trend. We can lose money at any time when we do a wrong decision. Please think about this, it is too risky to use loan money.

Inflation or no inflation, investing money that don't belong to you is pure idiocy. Same as investing money that you are saving for an emergency, education, housing or other goals. The golden rule of investing is to never invest money that you can't afford to lose.

Taking a loan is only acceptable if you have enough other assets that could be liquidated to bail yourself out in case of a loss.

I'm not aware about this money making method and it's probably not practicable, as banks and governments would never give this advantage to common citizens. I keep in mind loans must be very well calculated and thought before borrowed, because the consequences can be catastrophic if not paid in time. Therefore, you can't rely on passive income investments which depend on market fluctuations to pay it back. That is just too risky to be executed. Moreover, I would suggest everyone to never borrow money from banks or any other financial institution, since their rates are abusively high. A friendly loan with fair rates is the only thinkable alternative in my opinion.

Investing in a business is good that you'll surely see that there's ROI will come, though the risk is not that heavy since we know business will generate money that could possibly you can pay your debt.  As an expert says, many successful businessmen have taken debt to the banks and bought assets and let them generate profit until they will becomes successful and also paid the debt at the right time.

But this story is different from investing in crypto which is we don't know when we generate profit since the price is unpredictable, the period of time is unknown and the more time you'll wait the more you will pay the interest of your debt.  That's why the golden rule must exist, invest what you can afford and never take a loan.

Very hard to consider on taking up some loan when you do intent to make investment specially on crypto where everything is really not guaranteed whether you could really make money out of the
investment you made or totally lost it for which it would really be in resulting for you to make more problems since you do need to repay those interest but if you could
able to do so without depending with your crypto investments then its good but if not and you are totally depending on it then you would really be having a very big problem ahead.

Taking loans to invest on a high volatility business can never be an option for me and neither will I advice any individual or firm to have it considered. The term "Don't invest more than you can afford to lose" basically means to put in with loose funds and not going to the top aim of taking loans to risk it all.

Have a loan if there's a guarantee that you can earn money from that investment but if there's no guarantee I believe its too risky but having loan is still possible, just make sure you can pay that loan even if you didn't make profit on that investment. The market is very cheap right now, and I'd better choose to use my savings in the bank to invest it than to having a loan because the interest is really high and of course that is your not money after all and you might fall on a big debt trap.

If this belief and theory are really realized and true happen, we will be very lucky to have the loans. But it doesn't guarantee that every investment with loans will exactly bring high profits right?
As we know that if we have loans, we should pay for them and their interest monthly or even in some certain period. And what will happen if the reality is not like the expectation? We will be stressful enough because of the loan. That is why if we are not really ready with the loans or we are not able to have good management, it is better not to take loans for investment.
Aways DYOR because everything here is not an investment advise

It's the question of risk as well, are you willing to take that big risk to make a loan and invest right now in crypto or any other assets assuming that we might be in another recession period?

If people are going to say yes, then go with your instinct and borrow money but make a good plan B and mitigation in case your investment fails and you know where to get money to pay for your loans.