The only time it makes sense to invest a loan is when the return on investment of the loan is high and the risk level of the investment is low. It is inadvisable for an investor to invest in a loan through a risky investment avenue, like the stock or derivatives market. Also, if an investor takes out a loan, it does not make sense to place the money in an investment that will mature after the loan is due. It is also important that the investor makes sure that the return on investment is greater than the cost of the loan.

Certificates of deposit (CD) and bonds fit into this category, as do investments that will mature in 90 months or less and yield greater than 10% (the cost of the loan).

Read the answer to our frequently asked question What is the difference between leverage and margin? to learn more about this concept.

  1. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  2. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  3. Are personal loans bad for your credit score?

    Taking out a personal loan is not bad for your credit score in and of itself. However, there are several factors that come ... Read Full Answer >>
  4. Can Sallie Mae loans be forgiven?

    Sallie Mae loans, similar to other private loans, cannot be forgiven. As of 2015, there is no option for private student ... Read Full Answer >>
  5. Can Sallie Mae loans be consolidated?

    Sallie Mae loans can be consolidated with other federal loans, but not with private loans. For federal loan consolidation, ... Read Full Answer >>
  6. Are Sallie Mae loans considered federal loans?

    Sallie Mae is a private lender, so its direct loans are not federal loans. Basically, federal student loans consist of money ... Read Full Answer >>
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  1. Debt/Equity Ratio

    Debt/Equity Ratio is debt ratio used to measure a company's financial ...
  2. Personal Property Securities Register (PPSR)

    A written, public, online record of legal claims to personal ...
  3. Purchase Money Security Interest (PMSI)

    A security interest or claim on property that enables a lender ...
  4. Deficiency Balance

    The amount owed to a creditor if the sale proceeds from the collateral ...
  5. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  6. Debt Consolidation

    The act of combining several loans or liabilities into one loan. ...
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