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That makes it difficult to ascertain their financial stability or to verify what they are doing with your stock once you transfer it to them.
While the lenders promise to return the stock or pay the profits, if any, at the end of the loan period, there is no assurance that they will be able to do so.
These programs may be marketed by financial planners, investment advisers, insurance agents, accountants, attorneys and others—as well as by representatives of traditional broker-dealers.
In some instances, financial professionals and others offer the program as a way for their customers to raise cash to buy other financial products the professionals sell—such as annuities or other financial products that might or might not be securities—without requiring the customer to sell his or her existing stocks.
At the end of the three years, the customer would owe approximately 5,000: ,000 in principal, plus ,000 in interest, less ,000 in dividends.The interest rates charged for the loan can be relatively high, often above 10 percent.At the end of the loan period, the customer generally has several options: Depending on the terms of the program, the customer can either use existing stock as collateral or buy new stock to pledge as collateral.With a non-recourse loan, the lender has limited options if a borrower fails to repay the amount owed.Generally, the lender’s only remedy is to accept the securities pledged as collateral, even if their value has dropped.