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What Is the Cost of Borrowing? and 3 Other FAQ About Stock Loans

January 03, 20243 min read

So you have been growing your portfolio by making the right calls. Making the right trades is half the story. Some of your investments can help you fund your startup or buy that vacation home you've been dreaming about.

Not sure how? A stock loan can provide the funding you need to make this happen. Before taking the step, it's important to know what you're getting into. What's the cost of borrowing?

Is a stock loan right for you? We've you covered. We'll answer the most common questions asked by borrowers before taking a stock loan.

Your Must-Know Guide to Stock Loans

You might think that stock loans work the same as margin loans. Both types of loans borrow against your securities portfolio but, they are at opposite ends of the spectrum. Before taking a stock loan, it's important to know what you're getting into.

Here are the answers you must know before making the jump:

1. What Is a Stock Loan?

A stock loan is when you borrow against your securities. Yet, you can't take this loan against any type of security you hold.

These loans can be taken against non-marginable securities. These are securities you can't purchase on margin. Some examples are recent IPOs, penny stocks, among other securities.

2. What Is the Cost of Borrowing a Stock Loan?

Besides the loan amount, the cost of your stock loan will depend on your lender. Some charge rates based on current prime interest rates. Also, the term of your loan will influence the cost of your loan.

The most common stock loan terms are 24, 36, and 60 months. The typical loan amounts are from 50,000 to 5 million dollars. Keep in mind that the costs vary from loan to loan based on the rates, loan amount and terms.

3. Can You Qualify for a Stock Loan?

Every lender has their requirements. Yet, most stock loan lenders don't ask for credit checks, proof of income, debt ratio, or any other personal financial information. The lender will ask for evidence of stock ownership and other related documentation.

4. What Happens If You Fall Behind on Your Payments?

A stock loan is a non-recourse loan. This provides the borrower ease of mind if they fall behind on their payments. Your securities are the only collateral or guarantee the lender will require.

You won't have to worry about hurting your credit score or being asked for more collateral. A borrower has the freedom to walk away from a stock loan whenever they want.

Bottom Line

Before taking any loan, it's essential to educate yourself. The cost of borrowing and advantages of stock loans make them a great tool to get the most out of your investments. Remember that you may take these loans only against non-marginable securities.

Some lenders only fund loans for stocks trading on certain exchanges. It's important to check the lender's requirements before applying for a stock loan.

Also, it's recommended to shop around for the best rates and terms before applying. Only certain lenders provide competitive interest rates and customer friendly terms. If you do your homework and choose the right lender, you'll get the funding you need in no time.

Are you considering getting a stock loan? Contact us to learn how to get yours today.

David

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