Borrowing money to invest can sound like a fast track to wealth. If the returns are higher than the loan interest, you win — right?
Well… not so fast.
At withshimami, we believe in empowering you with the full picture so you can make informed money moves. Whether you’re in Kenya, Africa, or anywhere else, you should understand exactly how taking a loan to invest works, the risks involved, and when it might actually make sense.
What Does “Borrowing to Invest” Really Mean?
Borrowing to invest — also called leveraging or gearing — is when you take out a loan specifically for investment purposes. This could mean:
Taking a margin loan to buy shares or ETFs.
Getting a property investment loan to purchase real estate.
Using a personal loan to fund a lower-risk investment.
The idea is simple: you use someone else’s money to grow your own wealth. The potential gains can be significant — but so can the losses.
💡 Key reminder: You must repay the loan even if your investment loses value.
How Borrowing to Invest Works
Financial experts typically recommend this as a medium- to long-term strategy — not a quick flip. It works best for experienced investors who:
Understand their chosen investment market.
Have a clear repayment plan.
Can handle the emotional and financial stress if things go wrong.
A common method is loan leveraging, where the investment itself acts as collateral for the loan. For example:
Property loans — The property secures the debt.
Margin loans — Your shares, ETFs, or managed funds are the collateral.
What is a Margin Loan?
A margin loan lets you borrow to invest in shares, exchange-traded funds (ETFs), or managed funds.
Most lenders require you to maintain a Loan-to-Value Ratio (LVR) below 70%. If your investment value drops or your loan balance rises, your LVR can exceed the limit — triggering a margin call.
To lower your LVR, you can:
Add more funds to your account.
Increase your portfolio value by buying more investments.
Sell part of your portfolio to repay some of the loan.
If you fail to act, your lender can sell some of your investments automatically to bring the LVR back in line.
⚠️ Warning: Margin loans are high-risk. If you don’t fully understand how they work, it’s best to avoid them until you do.
Is an Investment Property Loan a Good Idea?
In Kenya and many other countries, borrowing to invest in real estate can be a profitable strategy. Rental properties — whether houses, plots, or commercial units — can generate income while appreciating in value.
But remember:
You still need to cover expenses like insurance, repairs, and land rates.
Property markets can fluctuate.
Rental income isn’t always guaranteed.
The goal is to invest in assets that generate income, not liabilities like cars that lose value over time.
What About Personal Loans?
Personal loans are more flexible — but also risky. They can be used for almost anything, and the funds are often released in a lump sum.
You could invest with a personal loan, but:
Returns may not be enough to cover the interest.
You still repay the loan whether you profit or not.
Lenders might restrict geared funds for certain investment types.
In short: only consider this route for low-risk investments where returns are predictable, even if smaller.
The Top 3 Positives of Taking a Loan to Invest
If done wisely, borrowing to invest has some clear advantages:
1. No Collateral Needed (in Some Cases)
For certain margin loans, you don’t need to pledge personal assets — the investment itself secures the loan.
2. Easy Access to Capital
Many lenders release funds quickly, helping you act on time-sensitive opportunities.
3. Portfolio Diversity
Loans can give you the capital to enter competitive investment areas like the stock market or real estate — markets you might not access otherwise.
The Risks of Borrowing to Invest
1. Losing Money
If your investment drops in value, you still owe the loan. This can quickly eat into your savings and other assets.
2. Interest Costs
High interest rates can erode your profits — especially if your returns are lower than expected.
3. Emotional Stress
Debt plus market volatility can cause sleepless nights and poor decision-making.
Kenyan Context: What to Keep in Mind
For our withshimami readers in Kenya:
Check the Central Bank of Kenya (CBK) guidelines for lending rates.
Factor in extra costs like legal fees for property purchases, land rates, and insurance.
Understand your lender’s terms for early repayment or margin calls.
Final Word from withshimami
Borrowing to invest isn’t automatically bad — but it’s not for everyone.
Our rule of thumb:
Unless the projected returns comfortably exceed the loan interest and you can handle the risk, it’s safer to build wealth through saving and low-risk investments first.
Before you sign any loan agreement:
Do your research.
Talk to a financial advisor (yes, we can help!).
BOOK YOUR SESSION WITH US NOW.
Have a backup plan in case your investment doesn’t perform.
💬 Ready to explore your investment options?
Book a consultation with withshimami Financial Advisory today and let’s plan a path that grows your wealth without unnecessary risks.
Disclaimer: The information provided in this article is for general educational and informational purposes only. It should not be considered as financial advice, investment guidance, or a recommendation to take any specific action. Investing and borrowing involve risk, including the potential loss of capital. Always conduct your own research and consult a qualified financial advisor before making financial decisions.