Make investing in shares possible with a margin loan.
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Looking to take a step into the world of shares but don’t quite have the financial means to do so? Your best bet might be a margin loan, a form of financing for that exact purpose. There’s plenty to consider when it comes to investment finance, so you should be across all the ins and outs before committing to anything. Read more about margin loans, how they work and how you should compare them in this comprehensive guide.
Margin lending is a type of loan designed to fund investment in areas like shares or managed funds. They serve as a great way for investors to make their move on the stock market even if they don’t have the funds to do so at the time. Generally, margin loan borrowers won’t make financial contributions to their loan principle; rather, the focus will be on maintaining their loan-to-value ratio (LVR) at a reasonable level and paying interest on their loan.
Security for your loan is placed in the shares that you purchase, which can fluctuate in value over time. This means that your LVR can change often throughout the course of your loan, which is an issue to be wary of. Lenders will implement restrictions on the maximum LVR when it comes to margin loans, which is often around 70%, meaning that if your lender is putting up more than this amount of funds, they can charge you a fee.
There are a multitude of ways in which you can compare different investment loans. Take a look at the list below to see how you should be assessing options on the market. Ensure that you have a good grasp across these areas before committing to any one loan or lender.
Interest rates are amongst the most important aspects of any loan to consider, and margin lending is no different. Fortunately for prospective borrowers, it’s a simple point to compare. Each lender will have their margin loan interest rates listed prominently on both their own websites and on Savvy; our comparison tools ensure that this factor is well-covered.
What is also a relevant consideration for margin loan borrowers is the structure of interest rate that they choose to go with. Variable rate margin loans are, as the name suggests, beholden to market movement when it comes to determining interest rates at any given time, meaning you can experience both rate falls and rises. Fixed rate margin loans lock in their interest rate over an extended period, which may be more expensive but bring with them stability in terms of interest payments.
It’s not just interest rates that you’ll have to look out for, though. Fees can mount up and end up costing you a substantial amount if you’re not careful. You may have to pay an application fee under certain circumstances, which could set you back several hundred dollars, but you might be able to avoid this if you’re applying by yourself or on behalf of a company.
You may also be charged with fees associated with maintaining your account, such as a general monthly or annual maintenance fee, and closing your account early, especially for fixed rate margin loans. In addition to these, depending on the lender you go with and the services they provide, you will be charged a brokerage fee to cover the cost of your broker buying and selling shares on your behalf. This fee is charged by the broker, rather than the lender, although you’ll usually find that they’re one in the same with margin loans.
Different lenders will have different restrictions in place when it comes to the maximum LVR they’re willing to permit for their margin loans. If you’re looking for loans with a greater LVR, you’re probably going to land on a lender offering 70% LVR loans ahead of those whose maximum sits at 60%, for example.
Similarly, if you want to borrow either a small or large amount for investing, you’ll have to look for each lender’s criteria when it comes to the minimum or maximum loans available to borrowers. These also aren’t the same across the board, so keep an eye out for lenders whose requirements match your needs.
Margin lending can come with some handy additional features that can improve your borrowing and investment experience. Some lenders will allow you to make advance interest payments, which can cut down on your owed total up front and alleviate some financial pressure later down the track. If you’re looking to trade in international shares, you’ll have to look for that specific feature, while you may also be able to take advantage of instalment gearing, which facilitates top-ups of your capital throughout the life of the loan.
Raising the amount of money you invest in shares will, in turn, increase the amount you’ll stand to gain
Even if you don’t have the funds you need to take your first steps into stocks and trading, a margin loan will be able to help you achieve that
In most cases, you’ll be able to claim margin loan interest payments on tax
In most cases, you’ll be able to claim margin loan interest payments on tax
If you’re on a variable rate margin loan, an increase in interest rates during your loan term could end up costing you a lot of money
Because your margin loan has a minimum requirement for LVR, enduring market falls can be more difficult, and you may have to sell prematurely as a result
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
