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. Stock loans are different from other types of loans which require a property collateral before you are approved. This is a type of loan that requires collateral in the form of any free-trading securities. If you have current stocks, you can loan 80% of its current value at a fixed rate payable from three to seven years.
Approval of your stock loan is not dependent on credit reports, employment or income reports. You only need to wait for a week after you have submitted the required paperwork for the loan. 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. If you are a non-US resident, you can still acquire a stock loans since selected securities from different countries are also allowed.
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. Walking away from the loan is another option you can take. Your lender will now own your stocks or securities. With non-resource loans, the borrowers is not personally liable even if he defaults. There will be no effect on the borrower’s credit rating.
You will still benefit from any appreciations, dividends and interests of your stocks during the term. If the borrower decides to forfeit the collateral, then the title of stock ownership changes and becomes the lender’s. Failure of the borrower to pay on the due date would mean that he cannot benefit from the dividends anymore, but the lender will.
Constant changing of asset values can be the risk of anyone who gets a stock loan. If there is a significant devaluation of the collateral stock, you can simply walk away from the loan and minimize your loss.
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. If you check the Internal Revenue code, you will find this an exception.
The changing values of securities in the course of time makes stock loans a less risky loan. 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.