Got money? Borrow anyway.

When Borrowing Can Be Smarter Than Spending Your Own Capital

“If I have the money, why should I borrow?”

At first glance, it’s a perfectly logical question. If, for example, you have CZK 1 million available and want to buy a car for CZK 500,000, why take out a loan? Because your own money doesn’t have to simply sit there waiting to be spent. It can remain invested and continue working for you.

Imagine someone with a stable, high income, sufficient financial reserves, and CZK 1 million invested for the long term. Assuming an average long-term return of 8%, their portfolio could potentially generate around CZK 80,000 a year. At the same time, they may have access to low-cost financing for the purchase.

The question then becomes not only “Can I afford it?” but also “Does it make sense to tap into my invested capital to pay for it?”

A Specific Example: CZK 1,000,000 of Your Own Money

Let’s say you have CZK 1,000,000 available and want to buy a car for CZK 500,000. You can either pay for it with your own money or borrow CZK 500,000 at an interest rate of 4.5% over five years and keep the entire CZK 1 million invested.

Under the simplified assumption of an 8% long-term return, the CZK 500,000 left invested could generate approximately CZK 40,000 per year. With a CZK 500,000 consumer loan at an interest rate of 4.5% over five years, the interest paid in the first year would be approximately CZK 20,634, as interest is calculated on the gradually declining outstanding principal. In this illustrative scenario, keeping the capital invested could therefore make economic sense.

Investment returns, however, are not guaranteed. In any given year, the return could be lower than 8%, or the portfolio could even lose value, while the loan repayments would still have to be made. This approach therefore makes the most sense for someone with sufficient cash flow, adequate financial reserves, and a long-term investment horizon.

Debt as a Tool for Managing Capital

For someone in a strong financial position, a loan can be a way to finance a major expense without disrupting their investment plan or selling investments at an unfavorable time. If markets are falling, being forced to sell part of a portfolio could mean locking in losses.

This is not about following a “borrow as much as you can” philosophy. The point is to compare the cost of financing with the value of preserving your own capital, while also taking the associated risks into account.

When Can This Approach Make Sense?

The loan must be genuinely inexpensive, its APR and fees reasonable, and the repayments comfortably manageable even under less favorable circumstances. At the same time, you need stable cash flow, sufficient financial reserves, and investments with an appropriate time horizon and risk profile.

The key is not to compare the guaranteed cost of borrowing with an investment return as though that return were equally certain. The decision should be based on a long-term perspective and on your ability to continue making repayments even when your investments temporarily generate no returns.

So, What’s the Takeaway?

The rule “If I have the cash, I won’t take on debt” may not always be the most efficient approach. If you have sufficient income, financial reserves, investments, and access to low-cost financing, it may make sense to keep your own money invested and finance part of the expense with borrowed capital.

Debt, therefore, does not have to be a necessity. For someone in a strong financial position, it can be a deliberate tool for managing their capital more efficiently.

Note: The 4.5% interest rate, five-year loan term, and 8% investment return used above are for illustrative purposes only. Investment returns are not guaranteed, and any specific decision will depend on the cost of borrowing, APR, fees, repayment period, cash flow, financial reserves, investment horizon, and willingness to take on risk. When considering a consumer loan, it is important to assess the total cost of borrowing rather than the interest rate alone.