Borrow smart by comparing margin loans
Are you looking for a loan to invest in shares? Perhaps a margin loan, also known as an investment loan, could offer what you want. Margin loans offer a way to invest on the stock market by borrowing the money you need from a lender.
While margin loans function much like personal loans or lines of credit, where you pay interest on the money you borrow, there are some differences. Margin lenders often limit how much money you can borrow compared to the value of the shares in your portfolio – this is the Loan to Value Ratio (LVR). This is how lenders measure your risk, and make sure you are not over-borrowing to buy shares.
Investing in the share market and obtaining a margin loan can be risky, so be sure to do your research properly. Whether you intend on using the money to purchase blue chip shares, or you're taking a chance on a new business, make the most out of your investment by thoroughly researching all aspects of margin loans.
Low rate margin loans
It is understandable to want the lowest rate when searching for a margin loan. The less interest you have to pay on the margin loan, the higher the potential net return of your investment.
With a margin loan, you generally don’t pay down the debt provided you maintain the agreed level of equity in your account. With this type of loan, you often only need to pay the interest on the amount of money you use.
Variable rate margin loans
Much like other types of variable loan, variable rate margin loans have interest rates that may rise or fall at the discretion of the lender. Whether the interest rate is variable or fixed, choosing a low rate means paying less in interest, so you can potentially make more profit from your investment.
Fixed rate margin loans
Fixed margin loans can be very useful when you are investing on the stock market, as while the value of your shares and returns may move up and down, your margin loan repayments will remain the same throughout the term of the loan. Many people find it reassuring to have such stability and security in their investment portfolio. Also, knowing that your monthly repayment will not rise at an inappropriate time allows you to accurately budget your repayment strategy.
However, it’s important to remember that fixed rates may be more expensive than variable rate margin loans, simply due to paying for the security of your interest rate remaining the same over the life of the loan term. If you are happy to potentially pay more for that peace of mind, make sure you compare online to get the best fixed margin loan possible.
Compare margin loans
You can rate margin loans in a variety of different ways.
Some of the margin loan features to compare include:
- Loan type
- Interest type
- Loan to Value Ratio (LVR)
- Interest rates
- Fees and charges
- Service offerings such as online and phone access
- How often the rates change
Looking at margin loan features and benefits can help you to benchmark the available options, determine which margin loans may suit your needs, and help you make the right choice for your finances.