Comparing Stock-Secured Loans and Certificate-Secured Loans

Opting for a secured loan may result in lower interest rates as you are partially assuming the risk of the loan. A secured loan uses collateral, typically an asset, to guarantee against default. The lender can seize the asset if the borrower defaults. Two less traditional assets to use as collateral are stocks and cash. However, both are options to reduce the cost of financing.

Stock-Secured Loans

Lender can hold the original certificate for stock you own in order to secure your loan. The stock will continue to fluctuate in value and even produce dividends while it is held by the lender. You will not release the asset to the lender unless you default on the loan. This option allows you to tap into the equity you have in stocks while and achieve liquidity in the short run while maintaining your investments for the long run.

Certificate-Secured Loans

Lenders may ask you to place on hold a certificate worth a certain cash value for a certificate-secured loan. The certificate is similar to a savings account in that it will produce mild returns based on a dividend rate while the bank or lender holds onto it. You can subtract this rate from the interest rate of your loan, meaning certificate-secured loans can be very cheap. However, you will immediately lose the cash if you default.

 


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