
Non-Recourse Stock Loans for Dummies
Most people don’t understand Wall Street, financial lingo. Why should they? But when deciding on loan types, this lack of understanding can make it
difficult to determine which financial options are right for you.
Non-recourse stock loans are a simple, low-risk, financial option for anyone experiencing a sudden need for cash accessibility. A very accessible type of loan, and available to any individual with an established stock portfolio, non-recourse stock loans sound complicated and rife with financial jargon, but they are not. When you are in a situation that calls for quick thinking, especially when it’s related to finances, fast and decisive action is necessary. But if you don’t know your options and what those options mean, then how can you make the best decision for your financial future?
Below is a simple, easily understood breakdown of non-recourse loans so that when you do need access to cash, you will consider this option.
- What does “Non-recourse” mean?
Non-recourse means that you as the borrower, are not assigned any personal liability when you enter this deal. The lender has no grounds (no recourse) to garnish your wages or take any further action (recourse) if you default. The lender is limited to the stock collateral as his/her only form of recourse. You don’t risk losing your house, your savings, or any other assets.
- What is a stock loan?
A stock loan is exactly as its name implies. It is a loan that you borrow against the value of your stocks or stock portfolio. When you agree to take out a stock loan, you also agree to transfer some of your securities to your lender, who will hold them as collateral for the duration of the loan term. In exchange, your lender provides you with an agreed upon loan amount.
- What happens at the end of the loan term?
When the loan comes due, you have three options. Your decision will typically rest on how well your stock performed in the market during the term of the loan. If it appreciated substantially, your smartest option is to pay off the loan and collect your portfolio, along with that appreciation. If the stock’s value has fallen, you might choose to relinquish your shares and walk away. If your stock has remained stable with relative no major loss or gain, you also have the choice to refinance the loan and extend the original loan term. As is apparent, stock loans offer the borrower plenty of options at the culmination of the loan term.
- What serves as the collateral for the non-recourse loan?
Your stock portfolio, or designated securities, serve as the only collateral for the loan.
Now that there is come clarity, you can see that stock loans, while they may sound complicated, are a reasonably simple and accessible loan. Choosing a stock loan for your cash needs, offers infinite potential for safeguarding your present financial status and for growing your future wealth.