Warren Buffet famously borrowed money to invest, and now he’s one of the richest men on the planet. But the Oracle of Omaha doesn’t recommend the average person follow in his footsteps. 

So, why should you do as he says and not as he does? Here are three times when borrowing doesn’t make sense. 

1. You Have Bad Credit

One of the few times borrowing to invest might make sense (and this is only a might, as this also depends on the success of your securities) is when you can lock into ultra low rates. Unfortunately, this is almost impossible when you have bad credit.

You only earn bad credit when you don’t pay bills or carry over a balance on your credit cards and lines of credit. These habits tell most financial institutions that you could do the same when it comes to their loans, so they might either deny you or hike your rates. 

Sometimes, you need a little help, even when you have bad credit, which is why some online direct lenders offer higher interest installment loans. In an unexpected emergency, borrowing money at higher rates might make sense if it helps you take care of repairs and avoid other consequences. 

According to the lending experts at MoneyKey, installment loans for bad credit are designed as band-aid solutions when you need a quick influx of funds for unexpected, urgent expenses. So you may use installment loans through MoneyKey to help you repair a stalled car or burst pipe. 

Bad credit installment loans can be a lifeline when you’re in a tight spot, but they don’t make sense as leverage. Their rate might soak up your gains, so they cost too much to risk it

2. Your Home Doesn’t Have Equity

Equity is the best way the average person with a home can build wealth. You can borrow against your home equity at lower rates than installment loans for bad credit, tapping into this money to renovate, buy an investment property, or pay for your child’s tuition.

In some circles, homeowners may also use their equity to invest in the market. They look for long-term investments that promise higher rates of return than the risk on their home equity loan or line of credit. 

Remember that equity is how much money you’ve put into paying off the mortgage. This option might not be in the cards for you if you recently purchased your home.

3. You Use Margin Loans

Another way some people might borrow to invest is through margin loans. These financial products work in similar ways to your equity, but you’re borrowing against existing securities in your portfolio at a variable rate instead of the value of your home.

Margin loans increase how much money you have to play with, which sounds great on paper. The downside is you’ll wind up owing more than you earn if your investments drop in price.

What’s worse, many firms may perform what’s called a margin call. This is a request to put more money into your account to meet their equity requirements. Sometimes, they give you fair warning, but they may not. According to the SEC, they can sell off your securities without notice if you don’t meet their margin call.

As a result, you’ll wind up losing money twice — once on the loss differential between your loan and performance and another in the sale. 

Remember this the next time you’re thinking about borrowing money to invest. These three options pose too much risk to be worth it.