What is a margin loan?
Margin loans let you borrow money to invest in the share market and in managed funds.
How does it work?
Your shares are used as security for the loan, allowing you to borrow and invest much more than you can normally afford.
What are the benefits and costs?
Because you have more money to invest, if your shares rise in value, you can obtain higher profits, but at the same, if they drop in value, you will experience bigger losses. There are also tax incentives to using margin loans in Australia to fund your share market investments,
What is negative equity?
This is when your share investment falls below the amount you borrowed, meaning that you need to repay more than the amount of shares you have.
What is the loan to value ratio (LVR)?
To protect against the possibility of negative equity, margin lenders will only lend a portion of your investment amount. This percentage is known as the the loan to value ratio (LVR). For example, if a margin loan's LVR is 60%, borrowing to invest in $20,000 worth of shares, will require a 40%, or $8000 as a deposit.
To find some of the best margin loans Australia has to offer, you can use the comparison tools at RateCity to help uncover the perfect product.