According to a recent DebtHammer study of 1,500 investors in the US, 21% of respondents stated they have taken out a loan to fund their cryptocurrency purchases.
Personal loans were among the most popular options, and they were frequently offered at excessive rates. 15% of people who indicated they had borrowed money to buy cryptocurrencies stated they had done so with a personal loan.
Other sources of funding for cryptocurrency investments, according to the research, included payday loans, mortgage refinances, home equity loans, title loans, and money left over from college loans.
The survey also revealed that 10% of those who took out payday loans did so to buy cryptocurrency, with the majority borrowing between $500 and $1,000.
But why are so many turning to loans to fund investments in cryptocurrency in the first place and is it a sensible way to shore up your finances? Some have had success in doing so; others are not convinced it is the right decision.
Taking out loans to pay for crypto
A recent graduate from Leeds, England, who wished to remain anonymous, told Euronews Next that they used a payday loan to buy £600 (€712) worth of Bitcoin earlier this year.
“At the time I thought it was a good decision,” they said. “But the price continued to fall – I lost a significant amount of my investment”.
Data from DebtHammer demonstrates that this is a widespread problem.
Nearly 19% of respondents claimed that their cryptocurrency investment has made it difficult for them to pay at least one bill, and 15% stated they were concerned about being evicted, having their house foreclosed on, or having their car repossessed.
Others, though, contend that investing in cryptocurrencies might be a sensible alternative if loans are handled wisely.
I thought it was a wise choice at the time. However, the price kept dropping, and I lost a large portion of my investment.
To pay for a £4,000 (€4,745) vet bill, Aaron Griffiths, from Chester, England, took out a personal loan for £6,000 (€7,117). He then put the remaining money in a variety of digital currencies, including Digitbyte, Bax, Telcoin, Solana, and Opulous, as well as other NFTs.
“The loan term is six years; I’m sure I’ll have pulled enough profit to at least cover the interest by then… maybe more,” he told Euronews Next.
He notes that he deliberately took out a larger loan to ensure lower interest rates.
“I could have put the money [left over from the vet’s bill] back into the loan straight away, but at the time it made more sense to put it into something that has done well before and see what happens,” Griffiths added.
That said, he stresses that he made the decision with enough money to spare in case the market crashes.
“I wouldn’t do something that foolish,” he said. “Paying back the loan is not a concern regardless for me – luckily I have a reasonably good income”.
Griffiths comments that his gains since making the investment a year ago are currently down, “but immaterial.”
In the overall scheme of things, I haven’t lost anything, he said. “There were times when I could have made money,” the speaker said.
When asked if he would advise others to follow suit, Griffiths responds that it really depends on the situation “depends on whether they have a plan. Personally, I wouldn’t take out a loan just to invest because doing so would make me bitter if I lost the money “.