MARGIN LOANS

Margin Loans Demystified

Margin Loans Demystified
About this post

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?

Regardless of your investment knowledge it can 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.

The advantages

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?

Shop for margin loans, as well as most other financial products, on RateCity.com.au. At RateCity.com.au, you can use expert comparative data from Canstar, Australia’s leading financial research and ratings firm. They have analysed and evaluated hundreds of financial products and award a five-star system based on the best value. The Canstar 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