Reasons to Get a Stock Loan
One of the types of loans that you can get if you need money to fund you home, business, and other assets that need finances is a stock loan. This is not the same as other types of loans which are based on property collateral. You only need any form of free-trading securities to serve as collateral for the loan. The amount of loan you can get is 80% of the current value of your current stock which you can pay from three to seven years.
Your stock loan can easily be approved even without any credit report, employment or income reports. There are paperwork that you need to submit, and your loan will be processed in about a week’s time. Even if you are currently jobless or self-employed, you can still apply for stock loan.
The collateral loans that can be used for a stock loan include penny stocks, mutual funds, MTNs, bonds, foreign stocks, US treasuries, ETFs and corporate bonds. Even individuals who are not residents of the United States can acquire this loan since they allow other selected securities from different countries.
If the borrower’s collateral stock falls under the 80% required value, then there are certain options he can take. One of the options in making up the deficit is to give cash, or he can also give another stock or security so that the loan value will be valid again. Another option that one can take is to simply walk away from the loan. Your lender will now own your stocks or securities. A stock loan is non-recourse, and this means that the borrower is not personally liable. Even if you default on this loan, your credit rating is not affected.
You will still benefit from any appreciations, dividends and interests of your stocks during the term. Title of stock ownership changes once the borrower decides to forfeit the collateral. Lenders can benefit from the dividends in the event that the borrower fails to meet the payment due date.
Constant changing of asset values can be the risk of anyone who gets a stock loan. The best way to minimize your loss when there is significant devaluation of the collateral stock is to simply walk away from the loan.
Because there is no public record that exists for this financing, this type of loan does not need reporting to the credit bureau/ Stock loans are not taxable since they are not constructive sales. The Internal Revenue code recognizes that this is an exception.
Getting a stock loan is less risky since securities value changes from time to time. Interests in stock loans are paid quarterly, which is an advantage to you. If the stock value is higher, then you can simply walk away to minimize loss or pay the outstanding loan cost.