What is 'Borrowed Capital'

Borrowed capital consists of funds borrowed from either individuals or institutions. Borrowed capital can be used in a number of ways. Investors use borrowed capital to increase their potential investment returns; this use is known as leverage. The upside of investing with borrowed capital is the potential for greater percentage gains; the downside is the potential loss of someone else's money, which must then be repaid. Another way borrowed capital can be used is by businesses as a loan or debenture.

Also referred to as "loan capital."

BREAKING DOWN 'Borrowed Capital'

Investors commonly use borrowed capital when trading in the forex markets. Critics consider this leveraged trading to be dangerous, while proponents argue that with the proper precautions, such as the placing of stops, investors can achieve their goals faster without taking on too much risk.

People who take out a mortgage to buy a home are also using borrowed capital. In this case, the purpose of borrowing capital is not necessarily to improve potential investment returns, but to make it possible to purchase an expensive asset that is difficult to pay for in one lump sum.

  1. Five Cs Of Credit

    The five C's of credit is a method used by lenders to determine ...
  2. Stock Loan Fee

    A stock loan fee, or borrow fee, is a fee charged by a brokerage ...
  3. Borrowing Base

    The amount of money a lender will loan to a company based on ...
  4. Composite Cost Of Capital

    A company's cost to borrow money given the proportional amounts ...
  5. Involuntary Foreclosure

    When a borrower defaults on a home mortgage loan and the lender ...
  6. Prime

    A classification of borrowers, rates or holdings in the lending ...
Related Articles
  1. Trading

    How To Borrow For Free

    People will do anything to get a little extra money. If you need some cash, here are some ways you can borrow without much hassle.
  2. Investing

    Homeowners, Beware These Scams!

    If you're in a pinch for money, you're the prime target for con artists and thieves.
  3. Personal Finance

    The Best Way to Borrow

    There are many ways to secure funding. Find out the pros and cons of each way to borrow.
  4. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  5. Personal Finance

    Purchasing a Home with Bad Credit Is Possible: Here's How

    A bad credit report can become an obstacle, resulting in denials for credit or higher interest rates, but borrowers with low credit scores can still purchase a home.
  6. Personal Finance

    Interest-Only Mortgages: Home Free or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  7. Personal Finance

    Trended Credit Data Could Increase Interest Rates for Borrowers (FNMA, EFX)

    Mortgage lenders will soon be required to use trended credit data to qualify borrowers. As a result, many borrowers could have to take higher interest rates.
  8. Retirement

    Retirement Planning for Entrepreneurs and Small Businesses

    If your business has receiveables, here's a smart way to leverage them to build up your retirement fund fast.
  9. Personal Finance

    Should You Cash Out When You Refinance?

    If you want to cash out, make sure you’re doing it for the right reasons.
  1. What is the most important "C" in the Five Cs of Credit?

    Learn how the five C's of credit affect new credit application decisions, and understand how a lender analyzes each aspect ... Read Answer >>
  2. What is the difference between the Five Cs of Credit and credit rating?

    Learn the difference between the five C's of credit and credit rating and how they are used together by banks and finance ... Read Answer >>
  3. How does a credit crunch occur?

    A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to ... Read Answer >>
  4. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center