Margin Loans Demystified
Ever heard your fellow office workers jabbering on about margin loans around the water cooler? Perhaps you’ve felt the urge to get in on the action yourself, and stop spending so much money on very-vanilla lattes? They’re tasty, yes, but they won’t help your bank balance and, despite what you may think at 3 o’clock in the afternoon, they’re not essential for your survival.
Rest assured, help is at hand. While finance can be a complex subject, it can literally pay off to have some basic understanding of the various investment opportunities available to those of us who don’t have wads of cash.
Margin loans allow you to borrow money to invest in the share market. For every $1 you can afford to invest, a typical margin loan will lend you another $2 to add to your investment. Margin loans are offered by a number of banks and other financial institutions (known as margin lenders), specifically for investing into the share market, either by investing directly into shares - or, for the majority who lack the expertise to pick the best shares - by investing into managed funds.
Several margin lenders will offer a loan of as little as $2,000 on condition that you are able to invest $1,000 up front, plus $250 per month thereafter, for as long as you remain invested in the product. These numbers appear very affordable when compared to a fairly typical first-time buyer’s mortgage of around $300,000 accruing an interest rate of 8.5%. In this scenario you would typically have to find upwards of $20,000 to cover your home deposit, legal fees, and various other start-up costs, followed by repayments of around $2,400 a month.
But what advantage does a margin loan offer over a standard investment in shares or managed funds? The principle is similar to that of buying a property, where a proportionately small initial deposit sees your money grow much more quickly with the help of a much larger loan. Similarly, a margin loan where you are able to borrow $2 for every $1 you invest yourself effectively enables you to buy three times as many shares. While this means that a stock market rise sees your investment grow much more quickly, beware that a stock market fall could also see your investment hastily shrink in value. Seeking good advice before investing is a must.
How do I compare margin loans?
RateCity.com.au is the best website to shop for all margin loans, as well as most other financial products. At RateCity.com.au, you can use expert comparative data from CANSTAR CANNEX, Australia’s leading financial research and ratings firm. CANSTAR CANNEX has analysed and evaluated hundreds of financial products to award five stars to only the very best. The CANSTAR CANNEX star ratings go much further than just looking at interest rates. They also take into account important features so you can be confident you are getting the best product.
Use our easy search tools to compare margin loans at RateCity.com.au.
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