A consumer is looking for a loan for a stock trading account. He wants to borrow $20,000 to use in purchasing various stocks. It appears that this is a brand new endeavor for him, since he has lots of questions and he is starting out with a relatively small amount of money. We will try to answer most of his questions, although some are obviously outside our expertise and mandate. We tend to focus on loans and mortgages and not on investing advice.
The first question was whether he can get a loan? The answer is most likely yes, since he and his wife have a good credit rating. He would be eligible for a personal loan unsecured or secured. He has equity built up in his home and could use this equity to secure his loan and obtain a better interest rate on the loan.
One of his questions was whether he could use the equity of the stocks that he buys to secure his loan. The answer is probably not. Lenders tend to view stocks as high risk and most will just not consider them for security. If they do take them as security they might only consider 50% of the value as security and they would want to hold those stocks as well. Both situations are really not practical for a stock trading account.
A line of credit was also mentioned. A line of credit can be drawn on anytime up to the approved amount, in this case $20,000 or paid off completely at any time. This type of loan is ideal for a stock trading account due its flexibility as well as the client only pays interest on the loan when he or she actually uses the credit. The interest charges are tracked and reported which can be used as deductions against any income or profit that is made through stock purchases or income.
The line of credit can be secured or unsecured. The difference being the level of interest paid on the amounts that are withdrawn from the line of credit. This is a great tool to manage your costs and keep them as low as possible.
Investing in stocks can be a high risk activity. The stock market rises and falls based on many factors. Some can be predicted while many seem to be completely random. Careful investors will avoid becoming over extended, since a great deal of money can be lost or gained in a relatively short time period. Many investors will develop their own strategy for investment purposes based on the level of risk they can tolerate. Some will focus on high risk stocks with high volatility to take advantage of potential capital gains. Others will focus on income oriented stocks that pay good dividends over the long term. Both types of investments can swing widely making them a high risk investment for investors who can tolerate that level of risk.
DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION
Home/Mortgage Loan Amount : $20,000
Home Loan Application and Processing Speed (when do you need the funds): no rush, within the next week
Do you currently have a mortgage? : yes, 25 year term, we are in the 10th year of our mortgage, with a 2.5% interest rate.
Bank Name and Branch : First Republic Bank, MacArthur Blvd
What City/Town, State and County do you live in? : Newport Beach, California
Zip : 92660
What is your employment field? : tourism
Employment Position : manager of a local tourism attraction
When are you paid? (monthly/weekly/biweekly): biweekly
Your credit rating to be – excellent, fair, or bad? : excellent as far as I know
How did you find us? : looking online for a stock trading account
How are you paid? (direct deposit/paper check): direct deposit
Gross Amount Per Paycheck : $2000
Do you agree to have this information published online, without your PRIVATE information of course? : sure, as long as no private information is disclosed
Extra information here please (some detail): I am looking for a loan to finance a stock trading account. The amount I am looking for is only $20,000 . I can offer equity to cover it. I am wondering how much I can borrow and if there are any restrictions?
I am working with a broker who suggested that I could deduct the cost of any interest charges against the profit or income I might make. I really have no fixed idea regarding what sticks to invest in at this point. There is some risk regarding potential losses, but I think with a minimal investment of $20,000, I should be ok.
My wife and I both work. We have good jobs and make a decent amount of money. We have never missed a payment on our mortgage or our utility payments. I was late on a credit card bill one month a few years ago. I just simply forgot to make the payment. Anyway I paid the interest charges and the full amount as soon as I received a letter from them in the mail. Other than that one incident there should be no other blemishes on my credit rating. I would be interested in actually knowing what my credit rating is and how it would affect a loan for a stock trading account.
Since this loan is for a stock trading account, do I need to post some security for the loan or can it be a personal loan. Can I use the stocks I purchase as equity for the loan? Do I need to use the equity in my home as security? Since I will be buying and selling stocks from time to time, a line of credit would actually be better for me. This would allow me to borrow only when actually needed. Proceeds from dividends and sales of stocks could be placed back into the line of credit. I would also know exactly what my interest charges were. They would be separate from interest charges on our home for example, if we used our home as equity.
I know there are lots of questions, but perhaps you can help shed some light on these questions so that we incur as little cost as possible with the most flexibility. Thanks in advance for your help.