I’m in my early 20’s and taking out debt is actually… pretty difficult. Banks require several months worth of bank statements, stable proof of income, cosigner sometimes, good credit. All of this to get approved for a 7.99% interest rate on a personal loan with a strict repayment schedule.
Meanwhile on margin I don’t have to do paperwork at all, I don’t have payment plans, and I can take out several thousands at a 2% interest rate in a few minutes. I can use the money for practically anything, not just buying stocks.
Why is this margin debt so exceptionally easy to take out?
In: Economics
Margin is callable. That personal loan has that strict repayment schedule – they cant just say that you need to pay it all now immediately because you are now more at risk than when you took out the loan. With margin, they can.
When I was flipping houses in my late 20s the Competitive Equality Banking Act of 1987 went into effect, several banks changed ownership, and my bank called my loans and I went from a 2 million net worth to about half that, essentially overnight.
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