Financial products often come with various ancillary services. One useful service is a collateral loan, which allows individuals to borrow funds based on the products they have subscribed to. A typical example is a loan against insurance contracts, where one can borrow within the limits of the policy's surrender value.
Among financial products, a similar service exists for securities. Known as a 'securities collateral loan,' this service allows investors to secure funds without selling their stocks or exchange-traded funds (ETFs), making it a highly practical option for obtaining living expenses or emergency funds.
A securities collateral loan enables investors to borrow money using their stocks, ETFs, bonds, equity-linked securities (ELS), or funds as collateral. The loan limit is determined based on the assessed value of the collateral assets. However, not all securities are valued equally. The collateral recognition ratio and the amount available for borrowing can vary based on the risk level of the securities and the brokerage's criteria. After borrowing, the value of the collateral is continuously monitored in relation to stock price fluctuations. Borrowers can repay the loan by selling the collateralized stocks or depositing cash.
The interest rates for securities collateral loans at major brokerages generally range from the high 6% to the high 9% annually. Samsung Securities offers rates between 6.6% and 8.0% depending on customer grade and loan amount, while Mirae Asset Securities applies rates of 6.9% to 8.5% for branch accounts. For direct or non-branch accounts, rates are around 9.0% to 9.5%. Korea Investment & Securities offers rates from 7.5% to 9.0% based on the duration of use, and Kiwoom Securities varies rates from 7.65% to 9.45% based on the collateral type. Shinhan Investment Corp. applies rates from 7.55% to 9.85% depending on account type and customer grade. The loan period typically exceeds one month, and the possibility of extending the maturity varies by brokerage.
The primary advantage of a securities collateral loan is that it allows investors to secure necessary funds without selling their stocks. Borrowers can maintain their investment strategy while utilizing the loan for additional investments, potentially amplifying their investment scale through leverage. If stock prices rise as anticipated, the returns can exceed those achieved with only personal funds.
However, it is crucial to be aware that a decline in stock prices can also reduce the value of the collateral. If the collateral maintenance ratio falls below the brokerage's established threshold due to a drop in stock prices, investors may be required to deposit additional collateral or repay part of the loan. This highlights the importance of managing the collateral maintenance ratio. Typically, the collateral maintenance ratio for domestic stocks is around 140%, but this can vary depending on the brokerage, product, and stock type.
If investors fail to address collateral shortfalls within the specified period, the collateralized stocks may be subject to forced liquidation. This is particularly concerning if stock prices plummet, as shares may be sold at lower prices, resulting in confirmed losses. If the loan funds were used for additional investments, both the original stocks and the new investment assets may decline in value, leading to increased losses and interest burdens.
Experts advise that before utilizing a collateral loan, individuals should carefully compare interest rates, collateral recognition ratios, collateral maintenance ratios, and repayment conditions. A brokerage industry representative stated, "It is essential to consider the potential for stock price declines and the risks of forced liquidation. Above all, it is crucial to determine how the loan funds will be used and to establish a repayment plan that accounts for any unexpected movements in stock prices."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.