Is Basic Capital just a new type of personal loan?

But in actuality, getting a windfall of $100,000 doesn’t generally happen by accident—and it rarely comes without a cost and risk, which is why getting a personal loan can be tricky business. While in some cases, it may be helpful—if managed incorrectly, personal loans can be a dangerous drain to your wealth building. That’s why when people ask if Basic Capital is a form of personal loan, we want to be clear that while there are some vague similarities, we most definitely are not a personal loan.

What is a personal loan?

Personal loans are a financing option that provide the recipient with a lump sum of cash that is repaid through fixed, monthly payments on an agreed-upon timeline (“repayment plan”). Personal loans are generally issued by banks, who, to determine your eligibility and the loan’s terms, will likely run a credit check on your financial history or require you to put down some sort of collateral. Personal loans are a mixed bag, with some good qualities and some really bad ones, too.

The Good: Personal loans typically have two healthy features: simple interest and a set repayment plan. Unlike credit cards, which have a variable interest rate and no repayment plan , a personal loan payment is calculated only on the original loan amount, or principal, rather than compounding on previously accrued interest. Also, unlike credit cards that have no repayment plan and can compound indefinitely, personal loans come with an exit and retirement plan from the get-go. This is helpful because it’s easier to avoid falling into a vicious spiral of debt.

Personal loans are also attractive because they basically come without strings attached. As long as you agree on the cost and terms, you can use them for pretty much whatever you want, be it renovating your home, refinancing credit card debt, or going on vacation.

The Bad & Ugly: Most personal loans are unsecured and granted based on the borrower’s creditworthiness or credit score, but don’t let that false promise fool you—unsecured loans really mean that they are secured by everything. A loan that is unsecured by specific collateral means it is indirectly secured by all of your assets.

Given that personal loans are unsecured and require the lender to collect their loan by chasing you and your assets (if there is any), their interest rates can be incredibly expensive, running as high as 35%! This means over time, you’ll end up paying WAY more in interest than whatever you initially borrowed.

So while personal loans offer flexible benefits with their simple interest and repayment schedule, they also come with debt-inducing interest rates and a risk to all your assets, which could ruin your life.

How is Basic Capital different from a personal loan?

Basic Capital took the positive features of personal loans (simple interest and predictable repayment plan) and replaced the negative parts (high interest and personal liability) with far superior terms: low interest and no personal guarantee.

Here are a few other important distinctions:

No personal guarantee: Unlike personal loans that run the risk of wrecking your credit or having your collateral repossessed, Basic Capital’s financing is backed and secured by a specific asset, which is your Basic Capital investment fund, meaning all of your other assets are protected. The most you will ever lose are the funds that you’ve personally contributed to and invested in your Basic Capital.

Favorable interest rate: Given that your Basic Capital financing is secured, we are able to offer it at extremely favorable rates. Unlike unsecured personal loans which can have astronomical interest rates, Basic Capital is able to provide its investors with a fixed 7% interest rate—just two points higher than the Secured Overnight Financing Rate. And with the ability to refinance, you never have to feel like you’re stuck with it when interest rates drop.

No hoops to jump through: Given that your financing is secured by the asset, not you personally, there is no credit check or impact to your credit. All it takes to start investing is $1,000—from there, our 5-to-1 match will grant you a total of $5,000 to start earning gains on. Any money you put into the account goes toward your investments, so as long as the market goes up, you’ll see gains.

Flexible monthly payments: At Basic Capital, you can either choose to make installment payments out of pocket or have them be paid off directly from your investment gains. This gives you tremendous flexibility because we get that sometimes life happens.

So, what’s the catch?

It’s not a free-for-all: While a lump sum is added to your investment fund so that you can benefit from its compounding gains, you don’t have total flexibility to use the financing for whatever you want. You’re required to use the financing to invest not to consume. We also require that your investments are limited to high-quality diversified assets like a S&P 500 or diversified bond portfolio, not volatile single-name stock or crypto.

Still unsure about how this all works? Luckily, we’ve put a lot of thought into it. Learn all about our unique investment model, how it’s structured, and other common misconceptions in our post about what it means to have a retirement trust fund.