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Using loans as a vehicle

Discussion in 'General Investing Discussion' started by bdang007, 16th Aug, 2007.

  1. bdang007

    bdang007 Member

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    Would this be allowed:
    Borrowing money to buy shares, using a loan that you stated you want to use for home improvements because its cheaper??
     
  2. Rob G.

    Rob G. Well-Known Member

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    Allowed by who ?

    Its really an issue between you and the lender, probably subject to contract law.

    On breach of contract by, for example misrepresenting the terms, then the lender may be able to rescind and recover damages.

    You might end up with a bad credit risk being registered against your name.

    In the long run this could cost you more !

    Cheers,

    Rob
     
  3. bdang007

    bdang007 Member

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    hmm yeah I see the risk... I suppose its not worth it to save on a percent or 2.. Thanks!
     
  4. Simon

    Simon Well-Known Member

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    Why would it be cheaper? If the loan is secured by property you should get normal residential rates regrdless of the use of the money.

    See a decent mortgage broker is my advice!
     
  5. bdang007

    bdang007 Member

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    I guess the difference is when you take out a loan for buying shares, the banks will charge you more because it is riskier. Whereas if you took out a loan for say renovations, the banks will charge you less. I have noticed this with a few banks I've looked at. They have specific types of loans such as renovation loan and share buying loans. I do not currently own a home. I do own a car and some falling shares.... but i wouldn't mind borrowing more money to buy more shares. They're at bargain basement prices at the moment and *may* stay like that for a few more months...
     
  6. Simon

    Simon Well-Known Member

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    Are you in Australia?

    In Australia all secured residential loans are the same regardless of whether you buy shares, renovate or give the money to a beautiful girl with a winning smile.

    Were you comparing your mortgage against a loan directly secured by the shares or an unsecured personal loan?

    I have some experience with this am an a bit puzzled - I suspect you are not comparing apples with apples :)
     
  7. bdang007

    bdang007 Member

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    Hi Simon,
    Yes I am in australia. I will give an example:

    From MECU, personal loan products:

    1. Personal Loans 12.99% (for any purpose)
    2. Share loan 10.99% (to buy shares)
    3. Go Green Home improvement loan 8.24% (to renovate home with energy saving equipment)

    This is to illustrate what I am trying to ask. Lets say I told the bank I want to go for option 3. But instead of purchasing energy saving equipment, I purchase shares with it. Hope that makes sense....
     
  8. Rob G.

    Rob G. Well-Known Member

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    A secured loan most likely will not have consequences if the contract does not specify the use of the funds.

    But the terms might still matter if the proceeds are anything to do with the security.

    e.g. if you claim the borrowings were to improve the very asset over which you gave the security then it might still be a breach if you misled the lender into thinking they had a lower risk.

    Again, it depends on the contract.

    Rob
     
  9. Simon

    Simon Well-Known Member

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    Mate,

    Assuming you are able to borrow against residential property then go to a regular bank and borrow for any purpose under 8%.

    Sounds like you are looking for unsecured money - I suspect these banks will want to pay your vendor direct or want proof of purchase for the ernergy saving kit.

    A Margin Lender will charge less than the share loan you quoted. I know I pay quite a bit less.

    Cheers,
     
  10. bundy1964

    bundy1964 Well-Known Member

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    For a margin loan you do need at least 25% security or cash to start you off. Personal loan needs no starting capital, so horses for courses.

    Fairly brave move to go all out with a loan in current conditions though. Over 7 to 10 years you should do ok if you pick wisely.
     
  11. bdang007

    bdang007 Member

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    I'm not really into margin loans because oh the initial capital involved (20-50%) depending on which loan you take out. Plus theres always a chance of a margin call.

    I'm thinking of taking out a LOC from property (family member's property) and paying it off once I acquire enough capital for myself.

    It is risky at the moment, but I think that it is also a very good time to grab a bargain =]