Personal Debt as a Strategic Financial Tool: Evaluating Personal Loans for Wealth-Building in 2025

In the evolving landscape of personal finance, the question of whether debt can serve as a strategic tool for wealth-building has gained renewed urgency. With personal loan interest rates climbing to historic highs in 2025 and investment returns fluctuating across asset classes, the calculus for leveraging debt has become more nuanced. This analysis examines the feasibility of using personal loans to fund wealth-building opportunities, weighing the costs of borrowing against the potential gains from stocks and real estate.

The Cost of Borrowing: A Credit-Driven Landscape

Personal loan interest rates in 2025 are starkly divided by borrower credit profiles. For those with excellent credit (750+), rates range between 6.5% and 7%, according to NerdWallet's average rates, while consumers with good credit (700–749) face average APRs of 10% to 13%, per a Legal United States review. Borrowers with fair or poor credit (below 700), however, encounter APRs of 20% or higher, with some lenders charging up to 30%, as Legal United States documents. These disparities underscore a critical reality: the cost of debt is not uniform, and creditworthiness remains the linchpin of financial strategy.

Investment Returns: Stocks and Real Estate in 2025

Historically, stocks have delivered an average annual return of 10.6%, according to HAR's analysis, but 2025 forecasts paint a mixed picture. Morningstar's forecast lists Vanguard projecting U.S. equity returns at 2.8%–4.8% over the next decade, while BlackRock is estimated at 6.2% for the same period in that Morningstar piece. Real estate, meanwhile, offers a more fragmented outlook. Industrial properties and low-rise apartment buildings have shown 1-year returns of 9.5% and 9.0%, respectively, according to iPropertyManagement's analysis, though suburban homes and affordable markets in Europe remain strong performers due to rental income and moderate price growth, as a MonoEstate comparison notes.

Strategic Leverage: When Debt Makes Sense

For debt to function as a strategic tool, the return on investment (ROI) must exceed the loan's interest rate. Consider a borrower with excellent credit securing a 7% loan to invest in industrial real estate, which historically yields 9.5% per iPropertyManagement's analysis. The 2.5% spread generates a net gain, assuming stable market conditions. Similarly, a 6.5% loan allocated to high-growth tech stocks-projected to outperform in 2025 by HAR's analysis-could yield positive returns if the sector meets expectations.

However, the math becomes less favorable for borrowers with lower credit scores. A 14.48% loan, per NerdWallet's rate data, used to fund an investment with a 9% return results in a 5.48% net loss, eroding wealth rather than building it. This dynamic highlights a critical threshold: only borrowers with access to low-interest rates (typically those with excellent credit) can justify leveraging debt for wealth-building.

Risks and Caveats

Market volatility and economic uncertainty complicate this strategy. A downturn in the stock market or a real estate slump could render even low-interest debt unprofitable. For instance, if a 7% loan is used to invest in stocks that underperform Vanguard's 2.8% forecast from Morningstar's forecast, the borrower faces a 4.2% annual loss. Additionally, personal loans lack the tax advantages of mortgages or retirement accounts, further reducing their appeal.

Conclusion: Precision Over Haste

Personal debt can be a strategic tool, but its success hinges on precise alignment between borrowing costs and investment returns. In 2025, this approach is most viable for high-credit borrowers who can secure rates below 8% and target assets with projected returns exceeding 9%. For others, the risks of overleveraging-particularly in a high-interest-rate environment-outweigh potential rewards. As always, diversification and risk management remain paramount.