Borrowing funds (money) by submitting your stocks is a good financial idea to consider. It eliminates the decreasing diversification of your portfolio and brings your idle stocks into use. Although many benefits and disadvantages come with stock loan services (especially stock lending), its process is wide but simple. In this blog post, we will understand the whole process of borrowing against your stock portfolio in detail.
Application Process
The borrowing starts from an application process that comes into play when you approach a financial institution offering stock loans. Let’s understand the application step below:
Choosing A Lender
Firstly, you need to research and get a list of reputable stock loan companies lending on stocks. You can consider factors including interest rates, loan-to-value ratios, and customer service reputation to find the best for you.
Application Submission
Then, the lender asks you to fill out an application form. It involves your details about the investment portfolio including the types of stocks you own currently, their current market value, and the amount you want to borrow against which stock.
Documentation
Along with the application, you need to provide some documents to the lender. This includes your statements from your investment portfolio and identification (ID) documents. At times, many lenders ask for proof of income or assets as well.
Credit Check
Although a loan on stocks depends on your stocks’ overall value, some lenders may conduct a credit check as part of their assessment process.
During this first step, you can discuss the technical process of what is a stock loan or how does stock lending work. If you have any more queries or questions, you can connect with WorldWide Stock Loans. Our team of experts will guide you better and help you make informed decisions.
Collateral Valuation
After applying, the lender proceeds ahead to evaluate your stock portfolio. It involves the following:
Portfolio Evaluation
The assessment process by the lender includes checking the different stock types you hold. Their main aim is to verify the levels of volatility and liquidity. There are chances that these factors might impact the stocks’ suitability as collateral. Then, they compare your stocks’ value and market conditions at present. This is to keep all the involved risks clear and transparent with you.
Loan-to-value ratio (LTV)
Based on the valuation process, now comes the time to decide the LTV ratio. It’s the percentage of your stocks that you can borrow. Generally, the LTV ratios range from 50% to 90% depending on the policies of different stock loan companies.
Loan Terms
After the collateral valuation, the lender shares the specific loan terms in front of you. These include:
Loan Amount
The amount you can borrow as a fund is directly connected with the value of your stocks. Generally, the lenders offer some percentage of the total value. This ensures a margin of safety against potential stock market fluctuations.
Interest Rate
In a stock-secured loan, the investor can get competitive interest rates as compared to other forms of borrowing. Yes, stock lending offers better interest rates than credit cards and personal loans. The rate may vary depending on the policies and market conditions.
Repayment Schedule
Then, you get a proper schedule to pay back the loan amount. This generally involves options for monthly or quarterly payments. You can opt for any one depending on your requirements.
Loan Payment
Then comes the duration of the loan. It means how much time you have to repay. It can range from short-term (1-3 years) to longer-term arrangements.
Disbursement and Collateral Pledge
As you agree to the T&Cs of the loan, the following two steps take place:
Loan Disbursement
The lender releases the approved loan amount directly into your designated bank account. And then, you are free to access those funds for any purpose. It can be your new investment opportunities or personal expenses.
Collateral Pledge
To secure the loan, pledging the collateral (stocks) is equally important. It provides a legal claim of your stocks to the lender if you fail to meet the T&Cs.
Managing Your Securities-Based Loan
When you opt for a stock-based loan, don’t just jump into the process directly. Assess your stock portfolio and check its compliance with stock lending. If you can connect with a professional, it would be better. The expert will assist you better and help make informed decisions. Also, it’s important to calculate the involved risks when you get a stock loan.
Conclusion
Overall, borrowing against a stock portfolio is a good financial option. You can access the funds immediately and retain ownership of your stocks side-by-side. If you are also planning to get a loan on stocks, you can connect with Worldwide Stock Loans. We provide a comprehensive range of stock loan services to complement the financial aims of our clients.
