Taking loan during high inflation?

[jrrsparkles]

Today I had a meeting with a friend of mine who teaches economics at university.
He believes when the inflation rate rises that's profitable to take a loan even with high interest to buy other assets such as gold, bitcoin, and even real estate. On one side of this theory, we usually suggest people never invest money that they can't afford to lose and don't invest the money that does not belong to them for many reasons. These are golden tips and useful in any market.
But the question is what if you do not own enough money for investing? can you take a loan and invest?
Because if you look deeply into charts of inflation rates in most the countries you can easily understand taking loans even with high interests could be useful and profitable.
Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

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.

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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.

[Gyfts]

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.

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.

[Darker45]

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.

[davis196]

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).

[FairUser]

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.

[Jemzx00]

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).

The advice he received from his friend is rather one of the common economics advice which is just as you've said "book advice". But yes, not everything will work as you've intended to even if the risk won't be that high.
But before even considering this method, you must keep in mind that you still will need to have the amount you're loaning as it is not yours. Loan is a loan and you must pay it. These methods are mostly used by rich people to further widen their margin on their investments.
Still, borrowing for investment purposes could be a double edge sword where you might lose what you don't have.

[Cling18]

Today I had a meeting with a friend of mine who teaches economics at university.
He believes when the inflation rate rises that's profitable to take a loan even with high interest to buy other assets such as gold, bitcoin, and even real estate. On one side of this theory, we usually suggest people never invest money that they can't afford to lose and don't invest the money that does not belong to them for many reasons. These are golden tips and useful in any market.
But the question is what if you do not own enough money for investing? can you take a loan and invest?
Because if you look deeply into charts of inflation rates in most the countries you can easily understand taking loans even with high interests could be useful and profitable.
Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

Loaning or borrowing money for investment will never be a wise idea. In some cases, it would work but it isn't advisable since it will be too risky especially if you'll invest it in something without any assurance of good profit in time. It will be wiser to save and invest in your funds so you won't have a huge responsibility incase your investment won't be successful.

[Reid]

Same, personally. I don't like loans but there is not much of a choice for one person and he is eager that he could make some profits by doing so, then so be it. Also, if an individual is expecting money to come i.e. (profits from another investment) which will float at a later date then it is not like you are in a big stress at all.
I am also considering it but not the method of loan. Pawning something with good value. I have some items that I kept and I like to pawn it now while the prices of cryptocurrencies are cheap and who knows, it could be my big break.

[KingsDen]

But the question is what if you do not own enough money for investing? can you take a loan and invest?

This is the key, and it is the key to much wealth. Most of the wealthy personalities we see and admire live on debts. This is the reason that the rich is the friend of the banks. The poor saves money in the bank and the rich goes to borrow the poor man's money and become more rich.
The period of inflation is an added advantage and depends on the inflation rate.
I am strongly not against borrowing for investment, but concern is how productive will your investment be? Have you really done all the needed studies and research endure the investment is a good one?
You hardly can see good companies that never enjoyed good start ups or loans. Go for it and if it doesn't go well, atleast your capital can be recoverable. I know this idea is what I will use, but I am not certain yet where to invest the loan if granted me and I have no collateral that will give me the loan am looking up to.

[TheCoinGrabber]

Has anyone done the math for some of us who are not as quick grasping this? I still find this a bit too risky. I think I've heard about this before, supposedly you make your money as the inflation go down or something, can't exactly remember. Still, can people really afford to do this at such times like this?

[macson]

Today I had a meeting with a friend of mine who teaches economics at university.
He believes when the inflation rate rises that's profitable to take a loan even with high interest to buy other assets such as gold, bitcoin, and even real estate. On one side of this theory, we usually suggest people never invest money that they can't afford to lose and don't invest the money that does not belong to them for many reasons. These are golden tips and useful in any market.
But the question is what if you do not own enough money for investing? can you take a loan and invest?
Because if you look deeply into charts of inflation rates in most the countries you can easily understand taking loans even with high interests could be useful and profitable.
Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

Taking a loan for investment is a wise thing but don't invest the loan funds in a property at this time because property prices are unreasonable in many cities.  making a loan to invest in bitcoin imo is much more profitable because the price of bitcoin will definitely be bullish when the bad issues that are currently happening disappear.

[Captain Corporate]

This is exactly what people are doing in my nation right now. Its very very hard for regular citizens to buy homes right now. Even though the minimum wage is about 270 dollars, the house prices are around 300k dollars right now basically which is over a thousand times higher. But the rich are very very rich and when they get a loan, they do not pay taxes because all of those debts take away from their profits. So if you make 1 million dollars profit, and then take 1 million dollar loan, then you will not pay any debt. This also opens the door that 10 years later when the last payment happens, you are making 10+ million dollars, so that small amount will be nothing. Hence why rich are taking out loans, and I mean a ton of loans, and buying houses, both save from the inflation results, and also not paying taxes combined.

[RealMalatesta]

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.

That’s why you should make calculations before making a decision like this. Any business that you’re investing that kind of money should be a business that you’re very sure would yield profit.

You do not just go and invest that kind of money into any business, if it doesn’t end up being successful, you would lose it and the borrowed would be a total waste, you will end up struggling to pay for something that never benefited. I am a kind of person that’s always avoiding borrowing money, I always prefer to go with what I have and avoid debt, so that whatever risk I am taking is a one I am taking on my own.

[palle11]

Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

This is a usual believe and business advise comprising the dos and don'ts. Investing with someone's money is risky in cryptocurrency won't give you peace. To borrow for investment is preferred when you are doing physical business but all is about risk, a risk taken on that can be positive though but I better stay away from such risk as some risk are capable to give serious pressure.

[dunfida]

Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

This is a usual believe and business advise comprising the dos and don'ts. Investing with someone's money is risky in cryptocurrency won't give you peace. To borrow for investment is preferred when you are doing physical business but all is about risk, a risk taken can be positive though.

Even if you are dealing with physical investment it wont still be giving out that kind of assurance that it would succeed but somewhat the losses will really be on gradual phase not the same when you are dealing with

crypto which volatility is something that you havent seen or incomparable towards traditional investments or businesses which means it do matters on how much risk you could really able to bare it out.

Its not bad to take a loan but you should really think for how many times if this one wont be creating possible problems in the future.

[kaya11]

Today I had a meeting with a friend of mine who teaches economics at university.
He believes when the inflation rate rises that's profitable to take a loan even with high interest to buy other assets such as gold, bitcoin, and even real estate. On one side of this theory, we usually suggest people never invest money that they can't afford to lose and don't invest the money that does not belong to them for many reasons. These are golden tips and useful in any market.
But the question is what if you do not own enough money for investing? can you take a loan and invest?
Because if you look deeply into charts of inflation rates in most the countries you can easily understand taking loans even with high interests could be useful and profitable.
Personally, I don't suggest doing this because using other people's money will put me under stress and this can have negative effects on my decisions. What do you think?

We've have taken loans since last year twice already and the outcome was great because we did build a business to generate income. However the pressure is great, you would be waking up early to attend the needs of your customers. Even at night we manage to talk to them for their issues and orders, it is all because we have payments, deadlines to catch, mortgages and salaries of employees. We are still currently paying for our car and house, maybe I can rest easy after these loans will be paid. We have taken the risk but then I am thankful it has come to a success, we have learned a lot and will continue to do so. It is better than sitting or waiting for youe salary on whatever job you are doing, loans are an opportunity only if you put it on investments that will generate profits.

[The Sceptical Chymist]

Inflation or no inflation to me taking a loan to buy asset is just another glorified debts.

Amen to that--debt is, plain and simple, a bad thing for a person to carry on their books.  With businesses, it's another story, but if we're talking about borrowing money in order to invest in crypto, stocks, metals, whatever, I think that's a very bad idea.

I get the argument OP's economics guy made, but for one thing you have to weigh the interest rate you're paying on the loan against the inflation rate, and the other variable is how much of a return you can make with the money you borrowed--and that's a crapshoot, no matter how convinced your investment of choice is going to quadruple by the time you have to repay the lender.  If things don't go as planned, are you going to be able to pay off your debt?  I'd say there are tons of people who have far more credit card debt than they can handle, and I'd be willing to bet 99.9% of them figured they'd be able to pay it down before it got out of control.

Just don't do it.

The advice he received from his friend is rather one of the common economics advice which is just as you've said "book advice".

Yeah, it's like in a movie where some jackasses are trying to work out a complicated solution to whatever dilemma they've got to get themselves out of, and as they're talking it over one of them says, "Well, in theory this should work...".  And I agree; theory often doesn't conform itself to reality.

[romero121]

Has anyone done the math for some of us who are not as quick grasping this? I still find this a bit too risky. I think I've heard about this before, supposedly you make your money as the inflation go down or something, can't exactly remember. Still, can people really afford to do this at such times like this?

Taking loan is always risk, but if you've got stable earning to pay the interest along with the capital even if the market isn't supportive then it is not a big risk. There are people who doesn't have big spending, and they are affordable to pay the loan premium from their salary or out of the business. For them taking loan to invest on cryptocurrency will be profiting, because they've got the time which will assure with profit/growth.

[arwin100]

Has anyone done the math for some of us who are not as quick grasping this? I still find this a bit too risky. I think I've heard about this before, supposedly you make your money as the inflation go down or something, can't exactly remember. Still, can people really afford to do this at such times like this?

Taking loan is always risk, but if you've got stable earning to pay the interest along with the capital even if the market isn't supportive then it is not a big risk. There are people who doesn't have big spending, and they are affordable to pay the loan premium from their salary or out of the business. For them taking loan to invest on cryptocurrency will be profiting, because they've got the time which will assure with profit/growth.

If you just take a loan to invest it on cryptocurrency then this bad idea you made because especially at this moment we are in bearish season and we don't know the out come on every market movements so if you buy some these days then the price of major coins dump then there's nothing will happen and you will sink in debt. Maybe take loan if you really need it especially by using it on your daily needs or other 100% sure profitable things.