May 21, 2025 · 16 mins read
Santosh Kumar
It is a common phenomenon to use credit cards that offer rewards or cashback on spending. The credit card users can use those rewards to invest in stocks or ETFs. For most credit card users, one of the most common use cases is to buy merchandise now and pay for it at a later date, say a month later. Shopping online or offline with the aid of a credit card without having to worry about the price tag is what defines the key utility of a credit card. Meanwhile, not many card users are aware that one can use this financial instrument to invest as well.
For instance, you may want to invest ₹2 lakh in the stock market urgently because of the attractive valuations. And if you are short of liquidity during such a time, you may use your credit card to invest directly or even raise a loan against your credit limit to invest ₹2 lakh.
Although raising personal loan or buy shares with credit card is not considered sensible, it may be explored as a viable option in some circumstances by a set of investors.
Some of the key ways to use a credit card to invest om stocks:
Buy directly: Some brokerages enable investors to buy stocks with credit card. This may even involve a fee. It’s vital to examine the terms and make sure that you can clear the card balance quickly to avoid high interest.
Rewards and points: It is a common phenomenon to use credit cards that offer rewards or cashback on spending. The credit card users can use those rewards to invest in stocks or ETFs. Although it doesn’t entail direct borrowing, it can be a way to use credit cards for investing.
Short-term financing: If you are sure of a stock to spike shortly, you may use the credit card for investment. However, this is quite risky and speculative.
Avoiding high balances: If you choose to use credit for investing, ensure you can pay off the balance in full to avoid interest that could negate any investment gains.
Cash advance: You could also take a cash advance from your credit card and use the money to invest. However, this typically comes with high fees and interest rates, which start accruing immediately, thus rendering it an expensive option.
Before you buy stocks with a credit card, it's important to take into account the various risks, fees, and other factors that could cut into your profits. We're not just talking about maximizing points here — there are financial risks to be aware of (as is the case with most investments). Be aware of investment fees.
Buying stocks with a credit card comes with several fees. You may end up paying cash advance fees, which can top %5%, late payment fees if you forget to pay your card on time, and interest fees if your balance isn't paid off every month. Interest on cash advances is much higher than using your credit card for regular transactions and starts accruing when the cash advance is executed.
These fees can add up quickly, so make sure you read the fine print on your card's rates and fees and the fine print on the platform you plan to use to buy stocks.
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There are obvious risks involved in buying stocks with a credit card. For starters, the stock market can be volatile. A downturn can easily wipe out the rewards you earn from buy stocks with a credit card. Plus, the rising cost of living, inflation, and other unpredictable events like layoffs mean you should take caution and be well-informed regarding your investment options before making any decisions, regardless of whether they involve a credit card or not.
Additionally, buying stocks with a credit card may raise some red flags with your card issuer. Issuers may be extra-vigilant when it comes to spending it deem "risky." Stock purchases certainly fall into that category. The last thing you want is to get your credit card account shut down just to earn some points or miles.
There's also the possible negative impact this could have on your credit. Charging large stock purchases to your credit card can increase your utilization rate, which could negatively impact your credit score. And if you can't pay off your credit card every month, you'll incur interest fees that could wipe out any financial gain, let alone the value of the points you've earned. Be aware of the tax implications.
In addition to the fees imposed by your credit card issuer, your stock investments may be subject to capital gains taxes. This can further reduce the profits (and rewards) you're earning by paying with a credit card.
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Regardless of what purchases you're putting on your credit card, it's essential that you pay them off every month to avoid high interest fees. Your short-term stock gains mean nothing if you're hit with a 29%-plus interest charge by your credit card issuer. If you're investing long-term, using a credit card may be a bad idea if you don't have other funds set aside to pay off the card.
Higher rewards: Credit cards are designed to offer rewards. So, the more you use your credit card, the higher the rewards will be. Moreover, banks also encourage users to use credit cards with milestone benefits and fee reversals if a certain amount is spent annually. If you use a credit card to invest in NPS, you can earn higher rewards, reach your annual spending limit, and save on yearly credit card renewal fees.
Can be used to avail tax benefits: In case you are falling short of cash at the end of a financial year, but want to invest in NPS to save on tax. Then, a credit card comes in handy because you can use credit to invest and save taxes.
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Charges: Although investing in NPS with a credit card has its own benefits, the underlying charges for using a credit card are high. In such cases, if the benefits provided by credit cards do not outweigh the charges, then you are losing out on money. Let's understand this with an example. The credit card charges for investing in NPS are 1%, and GST is 18%. If you invest Rs 100,000 annually, the annual charges are Rs 1,000, and GST is Rs 180. Hence, the total charges are Rs 1,180 per annum. If the benefits from the credit card aren't higher than these charges, it is not worth investing in NPS through a credit card.
Higher interest cost: If you cannot repay your NPS investment on time, the bank will charge you interest. This interest will range between 35%-40% per annum. From the above example, if you invest Rs 1 lakh and you are unable to repay this amount on time, then the bank will charge Rs 40,000 per annum as interest. This outweighs the tax benefits and returns you earn from NPS in the long run.
Credit card limit: Every credit card comes with an upper limit for transactions. If you have already utilised a portion of your credit card for your expenses, you will not have enough balance left to invest in NPS.
High interest rates: It is worth noting that the interest charged on credit card loan can outweigh any potential returns.
Risk of debt: Using credit for investments can even lead to debt, especially in cases where the investment doesn’t perform as expected.
Volatility: Investing in stocks carries inherent risks, and using borrowed money raises that risk. Always consider your financial situation and consult with a financial advisor before using credit cards for investing.
It's possible to buy stocks with a credit card, but there are a lot of downsides to consider. In addition to all the fees involved, you may be giving up lucrative bonuses you could earn by funding a new brokerage account with cash. Investing in stocks is risky as it is, and if you're also using a credit card, there are many ways that you could land in a tough spot financially.
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Whether you apply for a new card to make a stock purchase or use an existing card with high reward potential, pay close attention to your credit score. A hard inquiry occurs when a credit check is run, and it can affect your credit score, so it is best not to do it too often. With a large purchase of stock, extension of cash advances, or balance transfers, make sure you are not bringing the card's outstanding balance too close to its preset credit limit, as this could increase your credit utilization ratio and lower your credit score.
Opening too many accounts at once or applying for too many cards too quickly may also negatively impact your credit. Aside from affecting the numbers on your credit history, activity like this can potentially raise red flags with your card issuer, known in the industry as “churning.” If they see you making risky spending choices, a card issuer may limit your ability to access more credit or receive approval for new cards.
No matter the method you choose to buy or sell stocks, your investments may incur capital gains tax when you make money. Capital gains taxes are determined by how long your holding period is for any given asset. This is something to be wary of if you are essentially using a loan from your credit card company to invest long-term with a high initial buy-in. The IRS considers long-term holding periods to be at least one year, which means if you invest a large sum for a long period, you must account for the final gain you make. Not only will you want to come up with the funds to pay off your card’s monthly balance long before you intend to sell, but you may also need to pay taxes owed on your gain.
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Initially, one could only buy stocks and securities after first funding their brokerage accounts via bank wire transfers, bank Unified Payments Interface (UPI) payments, debit cards, or net banking. In recent times, however, lots of investors now wonder whether credit cards could also be used to make investments. Not all brokerage accounts offer credit card funding options, but some do, either directly or indirectly.
Most leading platforms, however, prefer bank based transfers because of ease of regulation and other risks. Investing through credit cards is almost always in bank regulation because of speculative borrowing. Still some brokerage platforms may accept payments through credit cards via – Link a credit card through a cashless wallet or payment gateway.
1: Cash Advance (though abusive cash advance options always attract tremendous interest and should be avoided at all costs.)
2: Innovative investment products whereby brokerage platforms partner with banks to funnel loan payments through investment accounts.
Most platforms do not have a problem letting you know whether or not credit cards can be used for payments during the funding of the account. In India, dormant credit card funded brokerage accounts are almost always the rule, although some platforms in the US or Europe offer these features.
Borrowing money for investment and other speculative activities is not for legal entities like the Reserve Bank of India and the Securities and Exchange Board of India. The principle of the guidelines and policies is primarily aimed at avoiding the debt trap.
The most important and key points for the policies are as follows:
Controls on the use of leverage – The use of credit cards to make purchases and investments is considered to be indirect leverage and is therefore used with caution and is highly regulated.
Verification of identity and allocation of funds – Brokerages are required to demonstrate that the money used for investment is drawn from a bank account that is verified and legitimate.
Taxation and audit of migratory records – Payment of credit cards may break the migratory papers for payment for big sums of money and therefore bring unwanted attention.
Responsibility of the system – Brokerages suffer reputational damage and other additional risks associated with failure to compliance with the law as a result of enabling the investors to fund accounts with loans that have high rates of interest.
Consequently, most regulated brokerages in India do not allow credit cards to be used as a method of funding accounts. Some other foreign platforms do allow credit cards as a funding method, albeit with certain risk and liability disclaimers.
Although not typically recommended because of the steep interest rates imposed, there are a handful of situations in which using a credit card for investments might be warranted:
Short-term opportunity with guaranteed inflow – If you are certain of receiving a payment (salary, bonus, or reimbursement) before the credit card bill is due, you may temporarily fund your investment without incurring interest.
Credit card reward optimisation – Some cards give you cash back, reward points, or miles for certain types of purchases. If a brokerage platform classifies the credit card transaction as a “purchase,” you would able to earn rewards while investing.
Promotional no-cost EMI offers – On rare occasions, if a card has a 0% EMI promotional period on certain categories and investment purchases fall within that category, you could access short-term leverage.
Yes, you can use a credit card to invest in India. However, you can only invest in NPS or National Pension Scheme and physical gold using a credit card.
Yes, you can borrow money from a credit card and invest. However, it is not advisable as the charges associated with cash withdrawal and investing through a credit card are high and outweigh the benefits of the investment itself.
Yes, individuals can avail personal loans to purchase stocks in India. However, it is advisable to avoid using any credit facility to borrow more money, as it adds to one’s liability and makes it difficult to repay loans.
As per SEBI regulation, only credit cards are banned from getting into financial debt. However, one can invest in mutual funds and stocks using a debit card.
The interest rates on credit cards in India are anywhere from 13% to 48% depending on the lender and the type of credit card issued.
No. Reward points are often redeemable for flight bookings, hotel stays, shopping vouchers, or purchased as statement credit, but not toward direct equity purchases. Some fintech applications allow users to exchange rewards points for gift cards which can, in a roundabout way, be used for investment-related expenses, but not stocks directly.
This is the greatest risk of investing using credit cards. If the stock value declines and the bill is overdue, the investor will suffer from the consequences below:
1: High interest rates – 30 to 45% each year on a bulk of credit cards in India.
2: Penalties on overdue dues, aside from the interest.
3: Damage to a credit score, as lenders don’t pay reports to credit bureaus, including CIBIL’s reported.
4: A debt trap, as quickly accumulating overdue payments.
Unlike bank loans, which have a reasonable structure of installments, credit card debt amplifies quickly when unpaid and ignored.
No additional tax benefits exist simply because you used a credit card. Taxation takes place depending on the investment itself, not the SOURCE of investment on the CARD: Short-term and long-term capital gains, and dividends. Interest incurred on credit card payments is non-deductible and therefore the investor is not able to claim the credit card payments on taxes.
Usually, yes. If a brokerage firm does not allow credit card payments directly, investors would withdraw cash from the card, then transfer that cash to the brokerage account. This method is very inefficient because:
1: A cash advance will incur a fee that is between 2 and 3 % on the advance.
2: Interest is charged the moment the money is withdrawn (there is no grace period).
3: Using an ATM may incur additional fees.
So yes, there is a way to make this work. However, it is very inefficient.
**Credit utilization ratio is a dollar amount compared to your total credit card limit. **
1: Anything above 30 – 40 % is considered high and is detrimental to your CIBIL score.
2: Borderline high utilisation suggests some trouble with cash, resulting to less credit being offered.
3: Repeated utilisation of high credit can be very damaging, regardless of full repayment.
Thus, using credit cards for large amounts of money will ultimately be detrimental to your credit score, even with no repayment of interest.
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