A study conducted by Student Loan Report indicates that about one in five students in college are using their education loans to invest in virtual currencies. The situation has arisen because in case there are funds that remain a refund check is usually sent to the college students with a view to paying for living expenses. This is because a system has not been put in place which can ensure that the remaining funds are actually used for this purpose and thereby leaving the borrower to spend the money any way they please.
The reality however is that very few students are able to make money by investing their loans as majority of them will be on the losing end. This is because virtual currencies are highly volatile and there is no way of predicting where the prices will be in the future.
Besides students a survey by Lendedu, a consumer survey group, indicated that about 18.15% of investors of Bitcoin (BTC) use debt to buy the digital coin. The number of investors who were surveyed by Lendedu numbers 672. Among the respondents over half of them (around 51.78%) used credit cards and debit cards to make their purchases. Of the investors who used their credit cards to buy bitcoin about 22.13% did not pay off their credit card balance after the purchase.
Some of the investors that Lendedu polled revealed that they did not harbor fears over the volatility of Bitcoin and were thus willing to take a gamble confident that returns from the digital coin would help them pay off their credit card debt. This group constituted about 70% of the respondents. About 88.89% of the bitcoin investors also had plans of paying off their credit card debt from their capital gains from the virtual currency.
Other than credit cards and student loans people are also taking out second mortgages in order to purchase virtual currencies. Joseph Borg, the North American Securities Administrators Association president, has already raised the alarm. Towards the end of last year as Bitcoin was touching record highs, Borg, was approached via emails with offers to invest in cryptocurrencies. According to Borg people are taking big financial risk such as those that preceded the 2008 housing crash.
Borg has met people who are taking out second mortgages on their homes in order to buy Bitcoin. This is because homeowners are allowed to borrow up to 80% of their mortgage and this is based on the home?s value as well as their credit score. The interest rate for such loans is around 5% and in case of default, the banks can go ahead and foreclose their homes. According to Borg most buyers of virtual currencies are spending between $5,000 and $20,000 on digital coins.
Due to the increasing use of debt to purchase virtual currencies some big financial institutions such as Bank of America, JPMorgan Chase and Citigroup earlier in the year halted the use of their credit cards to purchase Bitcoin and other digital coins. This was based on fears that some of the customers might be unable to repay their debt.
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