Can you use stocks as collateral for a loan?

Can You Use Stocks as Collateral for a Loan

It is absolutely possible to use stocks as collateral for a loan. Many borrowers will use their stock portfolios to secure a higher funding amount, access a better interest rate, or simply improve their approval odds. 

While using stocks as collateral for a loan can certainly be a good strategy. There are many strings attached. It’s not as simple as getting automatically approved based on the value of your portfolio. 

There are several important factors that can come into play and affect whether it makes sense for your situation. Here’s what you need to know about using stocks as collateral for your loan. 

What is collateral?

Collateral is any asset of value which you own, that can be used to secure a loan. When you use an asset as collateral, you are giving the lender the right to seize your asset to recuperate their funds in case you are unable to keep up with your debt obligations. 

As you can imagine, lenders gain an extra layer of lending security when borrowers use collateral. However, borrowers may face added risks, particularly if they’re unable to repay the loan. 

Real estate, savings accounts, investment accounts, and even cars can be used as a collateral for a loan. The main requirement is that the asset holds enough value to cover the loan and that it’s in your name. 

Loans backed by collateral are also known as a security-based loan, a stock-based loan, or simply a stock collateral loan. 

How does utilizing stocks as collateral work?

To take out a stock collateral loan, the lender will review the value of your stock portfolio and approve you for a funding amount accordingly. They’ll likely also consider additional factors, such as your credit score, income level, and more. 

Most of the time, you’ll only be able to borrow up to 50% of the value of your stock portfolio. This means that if you have $10,000 in stocks, most lenders won’t approve you for a loan worth more than $5,000. However, there are usually some exceptions in certain cases. 

Once the lender approves you for the loan, you’ll receive the lump sum amount and make payments according to the terms you agreed on. In other cases where you want to take out a stock collateral loan, you’ll need to transfer ownership to the lender who will own the stocks during the life of your loan. 

This financing strategy has many different names. For instance, it’s often called security-based lending or portfolio-based lending. 

How to get a loan using stocks as collateral

Using stocks as collateral to get a loan can mean several different things. Take a look at the two most common scenarios.  


Margin is when you borrow money from a stock broker in order to buy more stocks, all the while using the investment as collateral. This is a strategy used by many professional investors to effectively own more stock without necessarily having to pay for all of it. 

The idea is that if the stocks increase in value, investors will be able to repay their debt and keep some for themselves. Unfortunately, there are also significant risks with this strategy, and the potential for loss can be great. 

Security-based lines of credit

A security based line of credit is typically offered by your stockbroker or bank. They’ll review the value of your stock portfolio and approve you for a credit line, typically up to 50% of your stock portfolio’s value. 

You’ll be able to withdraw from your approved credit line as you need. Plus, you’ll only need to pay interest on the amount you borrowed. 

Pros and cons of using stocks as collateral 

Like most financing options, there are different pons and cons to using stocks as collateral. Take a look at how they compare, to understand whether this solution is a good fit for you. 


  •  Improve your approval rates
  •  Help you access better interest rates
  •  Increase your potential funding amount for a loan 
  • Use funds for whatever means you deem fit 


  • You’ll usually only receive 50% of the full value of your portfolio instead of the full value. 
  • The value of your assets could fluctuate, meaning you might end up owing more money than you’ve borrowed. 
  • If you’re unable to make payments on your loan, your lender will seize your stocks to recover their funds. 

Other assets you can use to secure a loan

Stocks aren’t the only assets that can be used to secure a loan. Other options include a home, boat, car, retirement account, artwork, and more. The most important factor is that the asset holds enough value to cover the loan amount and that it’s in your name. 

What to know before signing a loan agreement

Taking out a loan shouldn’t be a decision you make lightly. Loans can stay on your credit report for years and have major financial repercussions, whether for better or worse. Make sure to take into account all the following factors if you’re thinking of signing a loan agreement. 

How much are you borrowing? 

Also known as the loan’s funding amount, this represents how much money the lender will grant you and how much you’ll need to pay back, plus interest. 

Depending on the value of your stock portfolio as well as your credit score and income levels, you may be approved for a higher funding amount than you actually need. Ideally, you only want to borrow as much as you need, or as much as you can reasonably pay back.  

What is an APR? 

The Annual Percentage Rate (APR) represents the overall yearly cost of a loan, shown as a percentage of the funding amount. APRs take into account interest rates as well as other fees. 

Are there any penalties for payments? 

Some lenders impose penalties or fines if your payments are late. Other times, you may be charged a prepayment penalty for trying to pay your loan off early. 

It’s a good idea to find out if any of these clauses exist. You may want to avoid them or at least negotiate them down if at all possible. 

How much are the monthly payments? 

Your monthly payments will consist of your principal and interest. Your principal is part of your total borrowed amount, and each month you make your payment you’ll be closer to paying it off. 

What happens to your collateral if you can’t repay the loan? 

If you find yourself in a scenario where you can’t repay your loan, know that the lender will have the right to seize it, sell it, and recuperate their funds. 

Should you use stocks for a collateral loan?

It’s not an easy decision to make. A lot of the details will fully depend on why you need the funds and whether or not you’re willing to put up with the risk of having to forfeit your stocks in case you can’t make your loan payments. 

Nevertheless, using stocks as collateral for a loan can be a great way to get your hands on more liquidity. You may even qualify for a low interest rate! You could even use your portfolio to boost your funding amount. 

Can you get a loan using stock?

Yes! It’s possible to get a loan using your stock portfolio as collateral. 

Can assets be used as collateral?

Some of the most common assets used as collateral are real estate, vehicles, investment accounts, stocks, and even artwork. 

Can you use stocks as collateral for a mortgage?

Stocks and other investments are typically used to secure a personal loan. Mortgages are already backed by your home, or the real estate you are financing.

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