Many people know or at least have an idea about stocks. On the other hand, when stock loan is brought into the picture, a lot of people have uncertainties. The term, however, should not be a mysterious one. To make it simple, this type of loan involves owning stock and borrowing money; in this case, the stock portfolio becomes the collateral.
It shares similarities with a mortgage loan, in which the house of the borrower becomes the collateral. Loans generally involve collateral, which can be in form of stocks. The good thing about loans secured by stocks is that the borrower can keep the proceeds in the event of non-payment. Only the stock portfolio is lost by the borrower. This is favorable because of the low risk involved.
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Many people obtain stock loans because of the mentioned benefit. This type of loan can be obtained online for convenience. Acquiring the loan is a good way to make available stocks useful. Borrowers have different reasons for loan procurement. Usual reasons include property acquisition, home renovation, and education funding. Money can be freed quickly. In fact, obtaining money through this form of loan is faster than through other loan types.
Stock-secured loans can actually be procured using different types of stocks. Lenders may accept several forms of stocks as collateral. Borrowers can have several options, but they have to meet certain requirements. Oftentimes, the arrangements are in favor of the borrower. Applying for the loan, processing it, approval, and releasing of the funds can be carried out in a few days. This speed in the whole process favors those who need the money right away.
Note that credit report, proof of employment, and income reports are not necessary during the application. Paperwork should only be accomplished within a week, roughly the time it takes to process the loan. Even unemployed people can obtain stock loans.
Specifically, penny stocks, bonds, foreign stocks, mutual funds, corporate bonds, and MTNs can be used as collateral. Non-Americans may also apply for the loan using selected securities.
In some cases, the collateral stock value may fall below 80% of the needed amount. The borrower's option may be to add up another stock or cash to come up with the required value to validate the loan. Keep in mind that this type of loan is non-recourse and it does not affect the credit rating of the borrower.
As long as the borrower repays the loan, he alone benefits from stock appreciations, interests, and dividends sustained. The benefit can shift to the lender when the borrower surrenders the collateral. If the borrower fails to meet due repayment, the lender may take advantage of these dividends too.
Remember this is still a loan, in which there is a risk of losing an asset. Another risk is brought about by constantly changing stock values. One can escape the serious repercussions of devaluation by surrendering the collateral to preclude serious financial loss. Nonetheless, a stock loan carries minimum risk. Generally, borrowers have the advantage, considering the interest is paid once in a quarter. The loan is exempt from taxes.
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