A stock loan is something you can apply for if you need financing for your home, business, and other assets that you need to support financially. 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. You will be able to loan 80% of the current value of your stocks at a fixed rate that you can pay from three to seven years.
Your stock loan can easily be approved even without any credit report, employment or income reports. You only need to wait for a week after you have submitted the required paperwork for the loan. Even individuals who have no current employment or those who are self-employed are able to acquire a 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. Selected securities from different countries can be used against a stock loan so even if you don’t live in the US, you can still apply for this.
There are certain options for the borrower if the value of his collateral stock falls below the 80 percent required value. In order to make you loan valid again, you can use cash or another stock or security. Another option that one can take is to simply walk away from the loan. The collateral is left with the lender. There is no personal liability here since stock loans are non-recourse loans. There will be no effect on the borrower’s credit rating.
During the terms, if your stocks earn dividends, interests, and appreciations, it will still go to you. It is only through forfeiting the collateral that the title of stock ownership changes. If a borrower fails to pay on the due date, then the lender can have the dividends.
If you get a stock loan, you risk losing an asset especially if the asset value is always changing. 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/ Since these loans are not constructive sales, they are not taxable. If you check the Internal Revenue code, you will find this an exception.
Since the value of securities changes from time to time, the risks are at a minimum if you get a stock 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.