Non-Recourse Stock Loans For Dummies
Unless you’re a Wall-Street-style professional, financial jargon is probably pretty
diffcult for you to decipher. That’s because it’s a language all its own. This can make
it diffcult to determine which financial options are most advantageous for you.
For instance, if you don’t know what a non-recourse stock loan is, you’d probably assume it’s a hyper-complicateddeal usually best reserved for high-level investment bankers. Not so! Non-recourse stock loans are simple, low-risk, and accessible to anybody with a stock portfolio. Let’s break down the jargon:
1. What does “Non-recourse” mean?
Non-recourse means you are not assigned any personal liability when you enter this deal. Your lender has no grounds to personally go after you for compensation. You don’t risk losing your house, your savings, or any other assets..
2. What is a stock loan?
Simply put, a stock loan is a loan taken out against the value of your stocks or stock portfolio. That means you transfer some of your securities to your lender, who holds onto them for the duration of the loan term. In exchange, your lender provides you with an agreed upon sum of money.
3. What happens at the end of the loan term?
At the end of the loan term you have three options, and your choice will typically depend on how your stock has fared in the market. If it’s appreciated substantially, you’ll probably want to pay off the loan and collect your portfolio, along with that appreciation. If your stock’s value has fallen, you’ll likely want to give up your shares and walk away, with no damage done. If your stock has been stable, you may want to refinance the loan and expand the loan term. As you can see, stock loans offer you plenty of options when the term runs out.
4. What serves as the collateral?
Your stock portfolio, or chosen securities, serve as the only collateral in this deal.
As you can see, stock loans may sound complicated, but they are actually a reasonably simple concept. Taking out a stock loan can offier endless potential for growing your wealth.