Borrowing against your assets has become a popular strategy for accessing liquidity without selling investments. One of the most effective ways to do this is by borrowing against stocks, also known as securities-backed loans or stock-backed lending.
But what exactly does it mean to borrow against stocks, and how can you use this strategy to your advantage? In this guide, we’ll explore the pros and cons of borrowing against stocks, how stock collateral loans work, and how you can reinvest freed-up capital into diversified investment opportunities, such as those offered by Mintos.
What does it mean to borrow against stocks?
Borrowing against stocks, or using stocks as loan collateral, allows investors to access funds without selling their investments. This strategy provides liquidity while preserving long-term growth potential and avoiding capital gains taxes.
Unlike traditional loans, securities-backed loans offer lower interest rates since they are secured by investment assets, making them an attractive option for investors looking to free up capital without disrupting their portfolio.
There are two main types of stock portfolio lending options.
1. Margin loans – Offered by brokerage firms, these loans let you borrow up to a certain percentage of your portfolio’s value. They come with risks, including margin calls, where the lender may require you to deposit more funds or sell assets if your portfolio’s value declines.
2. Securities-backed loans – Provided by banks or specialized lenders, these loans use stocks as collateral but are not tied to a brokerage account. They might feature lower interest rates, higher borrowing limits, and fewer restrictions compared to margin loans.
Why borrow against your stock portfolio?
Many investors turn to borrowing against a stock portfolio as a strategic way to access liquidity without selling investments. Whether you need funds for personal expenses, business opportunities, or additional investments, this approach provides a flexible and tax-efficient solution.
Here’s why stock-backed lending is a good option:
- Preserve your investments – Selling stocks can disrupt your long-term financial strategy and trigger capital gains taxes. By using stocks as loan collateral, you unlock funds while keeping your portfolio intact.
- Access low-interest financing – Compared to unsecured personal loans or credit cards, low-interest loans against stocks offer a more affordable way to borrow. Since the loan is backed by your securities, lenders charge lower interest rates due to reduced risk.
- Leverage your portfolio for new investments – Borrowing money against investments allows you to reinvest in new opportunities without selling your existing assets. Many investors use stock-backed financing strategies to diversify their portfolios or take advantage of time-sensitive market trends.
- Flexible loan terms – Stock portfolio lending options vary depending on the lender, but many offer customizable repayment schedules and high borrowing limits based on the value of your securities.
- Avoid market timing risks – Selling stocks during a market downturn can lock in losses. Borrowing money against investments lets you stay invested while still gaining access to cash when needed.
While securities-backed loans offer many benefits, they are not without risks. Borrowing against shares means your lender may require additional collateral or liquidate your stocks if the market value of your investments drops significantly.
Example: Turning liquidity into returns
Let’s say an investor borrows €20 000 against their stock portfolio at a 4% interest rate. Instead of letting that cash sit idle, they reinvest strategically.
- €10 000 into bonds – Earning 6% annually, generating €600 per year in fixed interest.
- €10 000 into real estate investments – Earning 5% annually, generating €500 per year in rental income.
In this scenario, annual returns (€1 100) exceed the loan interest (€800), creating a net positive return of €300. Meanwhile, the original stock portfolio continues growing, allowing for long-term wealth accumulation.
Using stocks as loan collateral can be a valuable financial tool. You should weigh the benefits and risks before making a decision.
How to borrow against stocks: A step-by-step guide
If you’re considering how to get a loan using stocks, follow these steps to secure a securities-backed loan and make the most of your investment capital. Unlike traditional personal loans, stock-backed lending allows you to access liquidity without selling your investments.
Here’s how it works.
1. Evaluate your portfolio
To qualify for a securities-backed loan, ensure you have sufficient equity in your stocks as loan collateral. Most lenders allow you to borrow at loan-to-value (LTV) ratios ranging from 50% to 80%, depending on the risk and liquidity of your stocks. However, not all securities qualify. Lenders typically look for:
- Blue-chip or highly liquid stocks – Shares of well-established companies with stable market value.
- Diversified portfolios – Some lenders prefer diversified holdings rather than concentrated positions in a single stock.
- Minimum portfolio value – Most lenders require at least €10 000 to €50 000 in securities to qualify.
- Loan-to-Value (LTV) ratio – Lenders generally allow borrowing 50% to 80% of the stock portfolio’s value.
2. Choose a lender
Not all stock portfolio lending options are the same. Consider:
- Interest rates – Look for low-interest loans against stocks to minimize borrowing costs.
- Loan terms – Consider repayment flexibility and restrictions. Margin loans vs. securities-backed loans – Margin loans are tied to brokerage accounts, while securities-backed loans may offer lower rates and fewer restrictions.
- LTV ratio – A higher LTV allows for more borrowing, but may come with higher risks of liquidation.
- Margin calls – Understand the lender’s policy on market fluctuations and whether you’ll need to deposit additional funds if your stocks drop in value.
3. Check for hidden fees
Even if a lender offers low-interest loans against stocks, be aware of additional costs.
- Origination fees – Some lenders charge 1-3% upfront.
- Maintenance fees – Ongoing account fees can reduce your returns.
- Forced liquidation costs – If your portfolio value drops, the lender may sell your stocks at a loss.
4. Apply for the loan
Submit your portfolio details and complete the application process. Many lenders have streamlined approval procedures since the loan is secured by your stock-backed lending agreement.
5. Receive funds
Once approved, the funds are deposited into your account, often within a few days. Since borrowing money against investments involves secured collateral, processing times are typically faster than traditional loans.
6. Reinvest strategically
Use your newly acquired liquidity to diversify your portfolio and optimize returns. Consider investing in:
- Fractional bonds – A stable, income-generating option.
- Real estate investments – A way to create long-term passive income.
> Learn more about investments on Mintos
By following these steps, you can efficiently leverage stocks for liquidity while maintaining long-term investment growth. Take time to understand the risks of stock-backed loans before committing to any borrowing strategy.
How Mintos fits into the picture
Borrowing against stocks is about making liquidity work for you. Once you’ve unlocked funds through stock-backed lending, the next step is to reinvest strategically to enhance your portfolio’s diversification and passive income potential.
Mintos offers a range of investment options that help you build wealth, generate regular income, and diversify your portfolio.
- Earn a steady stream of interest payments.
- Diversify across continents, industries, and lending companies.
- Automated investing vs. hands-on selection.
> Invest in loans
2. Bonds
- Earn predictable interest payments with fixed returns.
- Invest from €50.
- No investment fees, maximize net earnings.
> Check out bonds
3. ETFs
- Globally diversified portfolio aligned to your risk level.
- Zero commission. No fees for buying, holding, or selling ETFs on Mintos.
- Dynamically rebalanced to align with your financial goals.
> Get started with ETFs
4. Passive real estate
- Earn monthly rental income while benefitting from potential capital appreciation.
- Low-risk investment backed by physical real estate.
- Lower entry point than direct property ownership.
> Discover passive real estate
5. Smart Cash
- AAA-rated Money Market Fund.
- Higher interest than traditional savings accounts while keeping funds accessible.
- Same-day withdrawals with no fees or penalties.
Maximize liquidity through smart investing
Borrowing against stocks is a strategic way to free up capital without selling your investments, allowing you to maintain your portfolio’s growth potential while accessing cash when you need it. However, success with this strategy depends on how you reinvest the liquidity.
Rather than letting borrowed funds sit idle, you can put them to work in diversified income-generating investments. With Mintos, you can:
- Earn passive income through fixed interest payments.
- Generate monthly rental income from property-backed assets.
- Build long-term wealth with broad diversification.
When you reinvest through Mintos, you can create multiple income streams while keeping your original stock portfolio intact.
Take the next step today. Explore investment opportunities on Mintos and start building a diversified portfolio that aligns with your financial goals.
Disclaimer
This is a marketing communication and in no way should be viewed as investment research, advice, or a recommendation to invest. The value of your investment can go up as well as down, and you may lose part or all of your invested capital. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.
Any scenarios or examples provided are for illustrative purposes only. They do not guarantee specific outcomes or returns and should not be relied upon when making investment decisions. Actual results may vary based on market conditions, issuer performance, and other factors.
