What Investors Should Know About Non Recourse Stock Loans
What if we told you there was a way to quickly take out a healthy loan without the risk of bankruptcy? Well, there is, and they’re called non recourse stock loans.
With these loans, you put a few stocks up as collateral, and all your other property stays safe.
In this article, we’ll tell you everything you need to know about these loans. Let’s start with a nonrecourse loan definition.
Non Recourse Loan Definition
To take out a non recourse loan, you put up a piece of property as collateral. Then, if you can’t pay the loan back, the lending agency seizes your collateral.
In contrast, if you default on a (more traditional) recourse loan, you owe the lender the full value of the loan.
For example, imagine you default on a recourse style mortgage. The lender will seize and sell your house, but if that doesn’t cover the value of the loan, you’ll owe them the difference.
On the other hand, if the mortgage were a non recourse loan, the lender will only seize your house. It doesn’t matter how much the house is worth at the time. Once they seize it, you’re off the hook.
If you want quick cash, nonrecourse loans are a great option. Just remember that they sometimes come with higher interest rates, usually at least 10%.
Also, different states treat nonrecourse loans differently, so check with your state before you pursue one.
What Are Non Recourse Stock Loans?
Non recourse stock loans are like any other non recourse loan, but you put stocks up as collateral. You would hand over a stock or group of stocks to the lender, and they give you a portion (usually around 50 to 60%) of the stocks’ value in the form of a loan. If you fail to pay the loan back, the lender keeps your stocks.
A nonrecourse stock loan is a great way to take advantage of the value of your stock portfolio without actually selling any stocks. For example, let’s say you have a healthy stock portfolio worth $100,000 and you expect it to keep growing in value, but you’re in need of fast cash. A nonrecourse stock loan gives you access to that $100,000 without actually selling your stock.
Then when you pay the loan back, usually in two to three years, you get your stocks back. Keep in mind that the lender will keep any dividends the stocks paid during the loan period, but the value of those dividends is discounted from the amount you owe.
But you don’t have to take your stops back if you don’t want to. You have a few other options:
- Take Cash: If the stocks have increased in value by more than the amount of interest accrued on the loan, you have the option to take a portion of the difference in cash. Basically, if the stocks are worth more than you owe, you can take the cash and walk.
- Leave the Stocks: If the stocks have fallen in value, you can simply walk away and let the lender keep them. You don’t have to give any of the money back.
- Renew the Loan: Some lenders allow you to renew the loan and take out more money.
Take Out Your Stock Loan Today
That’s our stock nonrecourse loan definition. They’re simple. And they’re a great option for those of you with healthy stock portfolios and a need for cash.
If you think you’re a good candidate, contact one of our loan experts today.