Securities Lending and My Money
What you choose to do with your money once you’ve received a stock loan is up to you. That being said, there are more and less financially sound ways to do this, and learning to navigate these decisions will determine whether or not you will be able to pay that stock loan back.
One of the wiser moves borrowers make is to use their loans to pay back other loans with higher interest rates. Many investors are college graduates who have high interest student loans that are only growing with every year. Before these become unmanageable, many investors use their stocks to leverage a low interest rate loan from a financial institution and then use this money to pay off their student loans.
Others use stock loans as a way of increasing their portfolio by investing in new stocks. The important thing to remember here is to diversify rather than purchasing more of the same. This way, if one stock drops drastically, the other may still be sold to pay back the loans.
Unfortunately, many people do not act prudently with their stock loans, choosing to spend them on lavish living, according to one report from the Financial Industry Regulatory Authority. These people seem to be trying to live a lifestyle they associate with success at playing the stock market.
When taking out stock loans, it is important to remember that the money is not truly yours. It is something you have only temporarily. The only truly smart thing to do with this money is to use it to make money for yourself before giving it back. Spending it on something that offers no returns or in no way improves your finances is only going to hurt your situation in the long run.