# Interest on a margin loan



## arae (10 September 2009)

I've been looking at applying a margin loan to my already existing trading system and would like to clarify something. 

Is it correct that interest is only charged from the time the loan is used to buy the shares until the time the shares are sold?

For example, if I take out $16 000 on a margin loan at 10%p.a. and the period of time from when I bought the shares until when I sold them is 20 days, would the interest then be;

$16000 x 10% 
= $1600

1600 x 20/365.25

*Interest = $87.60 *


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## builder2818 (10 September 2009)

Yes, you only pay interest for the amount and time you use the loan for. I calculate it a little different to you but works out almost the same = 
0.1 x 16000 divided by 365 x 20

You will find that most lenders require you to get a ML of a minimum of $20k.


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## arae (10 September 2009)

Thanks Builder. So if the minimum amount is $20 000, but I only used a portion of that at any one time (say $16000), whilst the rest sat dormant in my margin loan account, I would only be charged interest on the portion in use? 

I use commsec, so would also be interested with anyone's experiences using their margin loans regarding extra fees etc. I've been considering a switch to Interactive Brokers, so any known comparisons would also be appreciated


Thanks again.


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## jono1887 (10 September 2009)

builder2818 said:


> Yes, you only pay interest for the amount and time you use the loan for. I calculate it a little different to you but works out almost the same =
> 0.1 x 16000 divided by 365 x 20
> 
> You will find that most lenders require you to get a ML of a minimum of $20k.




are you sure that is right? shouldnt it be 365/20?


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## builder2818 (10 September 2009)

jono1887 said:


> are you sure that is right? shouldnt it be 365/20?




No it's the amount you use times by the interest rate which gives you annual figure. You divide that by 365 to calculate how much daily interest you are charged multiplied by how many days you used the loan for.

Arae, I use Commsec. They don't have any hidden fees. Their rate is currently 7.85% p.a. They do charge you $10 every time you draw down on your loan though. 

And yes, you only pay interest on the amount you use regardless of the rest sitting in your account. I have a ML of $175k and sometimes only use about $25k and less depending on how much activity I have in the market. If you do sell stock though, you will still be charged interest while you wait the T+3 days to clear even though your account balance will show a different figure.


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## Krusty the Klown (11 September 2009)

arae said:


> Thanks Builder. So if the minimum amount is $20 000, but I only used a portion of that at any one time (say $16000), whilst the rest sat dormant in my margin loan account, I would only be charged interest on the portion in use?




Think of the margin loan facility as a line of credit. Or a credit card.

You only pay interest on the balance even though you have a higher credit limit - and you are only obligated to pay interest only.


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## arae (11 September 2009)

Thanks for the analogy Krusty. it certainly makes a lot of sense. If I knew of the flexibility of the loan I would have applied it much earlier. Cheers


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## Miro (28 September 2009)

What's the difference between a margin loan from e.g. CommSec at 7.85% and e.g. CMC Markets currently at 5% (official cash rate of 3% + 2%).

Why would CommSec and other lending institutions charge so much more? I don't get it ...


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## RamonR (28 September 2009)

Suncorp chargers 8%.
CMC rate sound great will definitely look into that.


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