Over the past decade the credit markets across the globe have continued to rebound and become less restrictive. However, some areas of lending are still challenging. One of these areas is in the form of providing unsecured personal loans. While getting an unsecured personal loan is still hard to come by, there are still some alternatives that people can use to obtain a personal loan.
One type of loan that is still provided by some specialty lenders are stock-secured loans. A stock-secured loan is a personal loan in which a consumer will be able to pledge a stock portfolio, or other liquid security, as collateral. The lender will then be able to provide financing of close to 100% of the stock. In the event that the loan goes into default, the lender will then have the ability to liquidate the stock to pay off the loan.
One provider of stock secured loans is Equities First. Overall, they have provided nearly $1 billion in loans to their borrowers and have a very low default and collection rate, which helps to protect their client’s stock portfolio.
There are several situations when taking out a stock secured loan from Equities First could be a good decision for a consumer. One situation is when a consumer wants to hold on to stock for tax or estate planning purposes. Selling stock can have a big tax consequence, especially if it is sold after a short period of time. Because of this, it is often more beneficial to take out a loan and pay interest than sell the stock and pay a higher tax rate.
Another situation is when selling the stock goes against the basic investment strategy. If you feel that there is a lot of near-term upside in the stock, it could make far more sense to hold the stock and take out a loan. Over the course of time, the appreciation and dividends paid by the stock will outweigh the interest.