Can you buy stocks with a credit card?

By: Sr vini

Investing in stocks is surely a risky game, but the higher the risk, the greater the return. The same thing is with stocks. It gives high returns, once the market soars. Usually, people invest their savings in stocks, but not everyone has savings to invest in stocks. So, is there any other way of financing the stock purchases? Can you buy stocks with a credit card? 

Yes, credit cards can be a way to finance stock purchases, without hurting savings or taking money from anyone. But investing in stocks with a credit card can be a riskier game because first, the money taken is on credit, and secondly, the stock market is very volatile. If the stocks go down, you will be at greater risk. 

Let’s know more about this and how you can buy stocks using credit cards!

Can you buy stocks with a credit card?

Yes, you can buy stocks with a credit card. Credit cards are risky, but that doesn’t mean your credit card can’t help you make money in the market. However, keep in mind that first, you have to search for ways to use credit cards for investing in stocks. 

Secondly, the charges and fees of credit cards in investing stocks will be high & it may equalize the gains you will make from stocks. 

On the other side, if your stock’s value goes down, then you will be at greater risk, as stock money will be gone & you have to pay a credit card with all fees & charges. 

In addition, keep in mind that any gains from investments are subject to either short-term or long-term capital gains taxation.

If you want to buy and sell stocks, most brokerage firms won’t let you fund your account with a credit card right away. Instead, you’ll have to pay for your account in a different way, like with a bank transfer, check, or wire transfer. Let’s get to know how can you do it. 

How to buy stocks with credit card?

As mentioned earlier, brokerage firms do not accept credit cards to fund stock purchases. But still, there are three ways, you can use credit cards to buy stocks. 

1) Cash Advance 

A cash advance enables you to obtain funds from your credit card through an ATM withdrawal, a bank withdrawal, or a convenience check. A cash advance has fees ranging from 3% to 5%, and the interest accrues instantly on the balance of a cash advance. There is no grace period for cash advances, so interest costs begin accruing the moment you take out cash.

You can take cash advance from a credit card & ask your broker to invest the money in stocks. 

2) Credit Card Loans

With a credit card loan, you can borrow up to the credit limit on your card and receive a cash deposit into your account. You’ll return the loan in installments at an agreed-upon interest rate, which is typically lower than the annual percentage rate on a credit card but may be higher than the rate on a personal loan.

Then you can use the amount to invest in stocks either through brokers or using online platforms.

3) Stockpile

This is the most popular way to invest in stocks using a credit card. At the moment, Stockpile is the only place where you may buy stocks directly with a credit card. In stockpile, you can purchase fractional shares using gift cards ranging in value from $1 to $2,000.

You can buy a Stockpile gift card with a credit card and then use the money on the gift card to buy stock shares.

You will be charged between $0.99 and $2.99 when you buy or sell on the app, as well as an additional 3% if you pay with a debit or credit card.

As a result, you should take this into account when deciding whether or not to use a credit card to purchase equities.

What things you should consider before buying stocks with a credit card?

You should keep the fees & charges in your mind, before buying stocks using a credit card. These may include investment fees, cash advance costs, late payment fees, and interest rates that fluctuate. Let’s have a look at all of these fees & things to consider:

1) Investment Fees

Make sure you check fees and fully understand how much it costs to use a credit card and how much it costs to trade with any app or site you choose.

2) Cash Advance Fees

You can ask for a cash advance on your credit card to get money, but this will also cost you between 3% and 5% of the amount you want. Interest usually starts to build up on cash advances right away.

3) Interest & Transfer fees

Balance transfer fees can range from 3% to 5% or more, depending on your card company and the terms of your card. Interest may also start to build up on balance transfers the same day the transaction is made.

Does Buying Stocks With a Credit Card Affect Your Credit Score?

Yes, buying stocks with credit cards will affect your credit score. It will be not due to investing in stocks or cash advancing the money, but it will be due to the use of credit lines & whether you will pay the money back on time or not. 

Credit score algorithms are unaware of what you charge on your credit cards, but they are aware of how much of your credit line you are using and whether you pay your bills on time and in full.

With a large purchase of stock, an extension of cash advances, or a balance transfer, you will make the card’s outstanding balance close to its credit limit. This will raise your credit utilization ratio, which will lower your credit score.

Read Also: What does it mean when your credit card is restricted

What Are the Risks of Buying Stocks With a Credit Card?

Any investment comes with risk but when you buy stocks on credit, the risk goes up. Even if you lose money on your investment, the company will still want you to pay back the money. 

You should consider these complications before investing using your credit card: 

  • You may not repay the money: If you anticipate that your investments will grow in value, you may be tempted to borrow more that you cant repay in a reasonable amount of time, leaving you with a big credit card load.
  • Returns may not exceed fees and interest:  Borrowing money with your credit card is not a free service. Whether you take out a credit card loan or a cash advance, you will pay interest. To walk away with more return, you’ll require stock returns that exceed your cash advance interest and fees – which is unlikely given the stock market’s average annual return of roughly 10%, which can vary substantially.
  • You may lose rewards: If your credit card offers incentives, cash transfers normally do not qualify for those incentives. Additionally, you may not earn points when purchasing gift cards or cash advances.
  • Your may start with loss: While the objective of investing is to earn money, using a credit card can result in an immediate loss due to the associated costs. As a result, you’ll need to profit from the investment in order to break even.
  • You may fall into scam: The Securities and Exchange Commission of the United States of America has issued multiple warnings regarding scammers who coerce consumers into making “investments” with their credit cards. They may steal your money as well as your credit card information.

So before investing in shares through credit cards, keep in mind these risks.

Does Buying Stock with a Credit Card Affect My Taxes?

Yes. Regardless of the method you use to purchase or sell stocks, when you earn money on your assets, you may be subject to capital gains tax.

Not only will you need funds to pay off your card’s monthly debt well in advance of selling, but you may also be required to pay taxes on your gain.

What are the safer & secure ways to invest using a credit card?

If you desire to invest, there are numerous alternatives to using credit card funds. Anything that does not charge interest is desirable, even if it results in a more gradual investment. Here are those alternatives:

1) Use Credit Card Rewards

Cashback rewards can be deposited into your bank account and subsequently transferred to your brokerage. Certain credit cards, such as the Fidelity Rewards Visa Signature Card and the American Express Schwab Investor Card, allow for direct transfer of rewards into qualifying investment accounts.

Make use of low-cost brokerage accounts that don’t require a large initial investment, and then grow your holdings as you make money.

2) Try and investment app

To get started investing using your credit card, try Acorns or Stash, two popular investment applications. Additionally, you can set up a “found money” option in Acorns, which allows you to earn cashback on purchases made through an Acorns-affiliated retailer.

3) Brokerage Margin Loans

Your brokerage firm may allow you to borrow money against your existing holdings, which you can use to purchase new stocks. While margin loans typically have lower interest rates than credit cards, these loans are also risky. 

Read Also: Can you reopen a closed credit card

Bottom Line

You can invest in stocks with credit cards, but keep in mind the risks associated with it. If you are a professional investor, then surely you can go with a credit card for funds. 

If you are a new investor, then try to invest with savings or through credit card rewards to stay on the safe side. 

We hope you found this article helpful & informative. Please let us know your thoughts & suggestions in the comments below!