Why is a stock loan better than a margin loan?

Why is a stock loan better than a margin loan?

Stock Loan and Margin Loan

When raising funds for investment purposes, you have a few considerations to make, mainly whether to use a stock-based loan or go through your broker and get a margin loan for your investment capital needs.

With a margin loan, a brokerage institution will have set rates, fees, and minimum standards presented and clearly defined, you may qualify for a margin loan through your broker, and you may not. Even if you do qualify for a margin loan, you may find it not in your best interest to raise your capital through a margin loan.

Many problems investors face when seeking a margin loan include high-interest rates that negate the profit the investor will make with the borrowed money, or upfront the minimum capital required to request a margin loan is more than the borrower is willing to allocate at the moment. Many of these problems can be avoided if you look the alternative borrowing solution, a stock-based loan.

With a stock-based loan, the terms are typically more flexible than the terms set in place by brokers on their margin loans. You may be eligible to negotiate a better rate of interest on the loan, or any other terms you are considered about, simply put, a stock-based loan is a more custom-tailored approach designed for your unique needs.

A margin loan has the consideration that must be weighed because they could be possible drawbacks for someone in your situation.

Risk for Loss

A margin loan can increase your risk for loss. If the market or particular securities you are invested in, you should lose a large chunk of your capital, an even larger loss of capital that would normally have been experienced because in this scenario you were leveraged through a margin loan.

Another drawback to a margin loan is the susceptibility to a margin call at any time you may not be expecting. A margin call is when your broker demands you deposit more cash to cover the losses incurred, in extreme case you could owe more money than your original investment, so you could lose your entire investment and still owe money.

This is not even a possibility with a non-recourse stock loan; your risk is limited to the collateral you put up against the loan. You can never lose more than your original investment.

Margin loans are not considered non-recourse loans, so if you default on the loan because you can no longer make the payments yourself and all other assets outside of the pledged collateral are still at risk of seizure.

Easy Stock Loans understands you want to maximize the capital you have to trade with, which in turn will result in being exposed to a possible opportunity for your investment portfolio. Because of this, we work with investors who do not qualify or who are looking for alternatives to a margin loan. We help you get the funds you need to advance your investing or trading goals while helping you mitigate your downside and personal risk.

Contact Easy Stock Loans today to discuss the personalized situation we have just for you.

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