Probably the most common view regarding the use of a loan is likely to be that of financing any more or less necessary purchase. If, for example, a new car is needed or even a house is to be built, then credit is the most frequently used type of financing. This is confirmed regularly on the basis of numerous statistics and surveys of relevant specialist magazines. But with a loan not only things like a car or even a house can be financed. So make clever consumers uses low-interest phases, as they are taking place right now, even for a kind of financing, which many people seem quite absurd: for wealth creation! How please: make debts to make a fortune? How should this work?
The magic word is called “Securities Loan
Admittedly, it sounds paradoxical and subjectively, it seems completely nonsensical, namely to buy securities “on pump”. But as paradoxical as it may sound, such a project may well work in practice. Anyone who adheres to a few rules regarding such a venture can make a credit-financed investment in securities a total return. For this purpose, various banks and brokers offer special securities loans, which are exactly tailored to this financing option and the intended use. In practice, the loan for securities almost always works in such a way that, as a customer, you already have or would like to buy securities, which then act as collateral for the loan amount granted up to a certain mortgage lending value.
The Securities Loan in practice
The following example shows how such a securities loan could be put into practice: If, for example, a client of a broker owns securities in the amount of EUR 50,000 or wants to acquire them, the bank calculates a mortgage lending value of 80 percent. This would mean that it would be possible to receive a total of EUR 40,000 as a securities loan from the custodian bank. Of course, it should be taken into account that, of course, also in the case of a securities loan, appropriate interest accrues, of which, of course, it is necessary to inform. Because these interest rates play a significant role in the calculation of returns. Incidentally, the loan for securities is repaid like a normal installment loan, ie in monthly installments until the end of the agreed term.
Pay attention to risks with the securities loan
Every investment has certain risks that you should always be aware of. This risk is increased by taking out a securities loan. While the overriding aim of achieving a positive return on the credit-financed investment in this way is not unrealistic. But just as much loss of investment can occur at any time. Because first of all, you as a borrower by taking the loan debt. If the credit-financed investment fails, one still has to pay off that loan. In addition to the loss of investment, a significant financial burden!
Anyone who thinks about financing an investment through a loan should realize that this is a high-risk business. Basically, it is more likely to discourage buying securities through a loan. While this may work in practice, on the one hand, there is no guarantee of investment performance and, on the other hand, there is a significant risk that losses will be incurred overall.