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Date Published : Wednesday, March 12, 2008
Borrowing money in the form of personal loans or bonds, in order to invest, can lead to both good and bad news in the future, it has been claimed.
According to the Sydney Morning Herald's Barbara Drury, many individuals and businesses can reap the rewards by taking out loans in order to invest when the global financial climate is good.
However, increasing interest rates, the affects of the global credit crunch and an uncertain financial picture in markets across the world could all have serious consequences for the debts of Australian consumers and investors.
Over the last few years, an increasing number of Australians invested their money into property or bonds and reaped the rewards.
However, Ms Drury stated: "But last year the tables were turned, as successive rate rises coincided with tumbling share prices. In pockets of the country, falling property values added to the hurt.
"In other words, investors with variable-rate loans had to find more cash to fund their loan repayments just as the value of their investments went into free fall."
Ms Drury claims the reason for the mixed fortunes is down to products called margin loans. These allow people to borrow money to invest in shares or managed funds and claim the interest repayments as a tax deduction.
Rare in countries such as the UK, these loans are extremely popular in Australia and are on offer from most of the main banks and financial institutions.
Compare loan deals.
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