M1 Borrow Review: Should You Get a Margin Loan From M1 Finance?

If you’d like to borrow against your investments, margin loans like M1 Borrow let you access up to 35% of the value of your portfolio at just 2.0% – 3.5%. Learn if you should get a margin loan from M1 Finance.

Anna Yen   Updated December 16th, 2021

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M1 Borrow Summary

  • Minimum account balance: $5,000 in a taxable brokerage account
  • How much you can borrow: up to 35% of the value of your account
  • Interest rate: 3.5% for everyone (2.0% for M1 Plus members)

Pros

  • Automatic enrollment: no paperwork or credit check needed
  • An easy-to-use app
  • Flexible repayment schedule
  • No penalties for early repayment
  • Interest rates as low as 2.0%
  • Use the funds for whatever you want

Cons

  • $5,000 investment account minimum needed to borrow
  • You need to be an M1 Plus member to unlock the 2% rate
  • Maintenance (margin) call gets triggered if your portfolio drops below the margin requirement (30% of your account value)
  • Using margin loan proceeds to invest can magnify losses

What is M1 Borrow?

M1 Finance is a commission-free, low-cost investing app that offers some of the most competitive margin loans out there through M1 Borrow. (It also lets you build investment portfolios made up of over 6,000 stocks and ETFs for free.)

🔔 Read the review of M1 Finance.

What is a margin loan?

A margin loan is a secured line of credit that uses your investment portfolio as collateral. In simple terms, you are borrowing against the value of your investments. You can borrow funds up to the credit line amount, which is determined by the value of your investment portfolio.

While different brokers set their own standards for margin loans, common requirements include:

  • An open margin account
  • A minimum investment account balance
  • An equity threshold that your portfolio value must stay above to avoid margin calls

How does M1 Borrow work?

Any M1 Finance member with at least $5,000 in a taxable brokerage account is automatically eligible for M1 Borrow. There is no extra paperwork and no credit checks.

Once you’re eligible to borrow, you can get up to 35% of the value of your portfolio. (For instance, for a $5,000 portfolio, you can borrow up to $1,750.) The borrowing process is simple. Just log into the app or the online portal, click “Borrow,” and fill out a short request form – no application required.

Receiving your funds typically takes a few business days, after which you can use the cash for just about anything. You can choose to make interest-only or automatic payments as long you meet your margin requirements.

Who can borrow with M1 Finance?

M1 Finance clients with at least $5,000 in their taxable brokerage account can use M1 Borrow. Retirement (IRA), custodial, and trust accounts are not eligible. You will also need to maintain an investment portfolio value above a margin threshold (more on that below.)

As long as you meet these requirements, you can borrow money anytime to:

  • Buy more securities (leverage your account)
  • Refinance high-interest debt like car or student loan payments
  • Make home repairs and improvements
  • Buy new appliances, electronics, or even birthday presents
  • Cover emergency expenses such as medical or car repair bills

M1 Borrow fees

M1 Finance margin loans currently carry low interest rates of 3.5% for all borrowers. If you pay for the M1 Plus membership ($125/year), you can enjoy a 1.5% rate discount and pay just 2% on your loans.

Interest on M1 Borrow margin loans accrues daily and is due at the end of each month. You only pay for what you borrow. And you don’t need to wire any money to M1 Finance: instead, M1 Finance will deduct interest from the cash balance in your account.

But be warned: if you don’t keep enough cash on hand, M1 Finance will add the interest you owe to the money you’ve borrowed. And, if you have no borrow left, they will sell the investments in your portfolio to make the interest payment.

Paying back the margin loan

You can choose when you want to pay M1 Finance back (unless a margin call gets triggered.) You can either make one-off payments or set up recurring repayments.

What is a maintenance (margin) call?

A margin or maintenance call happens when the value of the equity in your account falls below the maintenance threshold, typically 30% of the account value. If the margin call gets triggered, you must deposit money to bring the account value back up. You need to do that within a short period of time. You may also sell some of your portfolio to meet the margin call.

Margin call example

If you have $10,000 in stocks in your portfolio and borrow $3,500, the total value of your account is $13,500 and the equity percentage is 74% ($10,000/$13,500). But, if your investments drop and are only worth $4,000, the equity percentage of your account is only 29.6%, which is less than 30%, and the margin call gets triggered.

M1 Finance reserves the right to add more restrictions for riskier or more concentrated portfolios. For example, riskier portfolios may have volatile securities prone to sharper movements.

You can watch your margin limits in the M1 Finance app or the online portal in real time. But if the market drops suddenly, M1 Finance may let you know that they’re making a maintenance call. In that case, you may have two to five days to deposit more funds in your account.

Unfortunately, failing to act in time will trigger the automatic selling of your investments to raise cash. Since you don’t get a say in which securities are sold, keeping an eye on your account is in your best interest.

M1 Borrow risks

Margin loans are an easy and cheap way to borrow, but they can be risky.

First, because the M1 Borrow interest rate tracks the Federal Funds Rate, the interest you pay can change and even go up. (That said, for now, it’s likely to remain in the low single digits.)

Second, getting a margin loan to buy more stocks may deepen your losses. Of course, investing comes with the risk of losses, and investing on margin increases that risk even more.

Lastly, even if you don’t use borrowed funds to invest, a big dip in your portfolio value may trigger a margin call. If you don’t have the cash to cover your margin call, you may have to sell some of your portfolio at the worst possible time (such as when the market is down.)

Should you use a margin loan?

M1 Borrow margin loans come with several advantages, such as:

  • No extra paperwork or credit checks
  • Very competitive interest rates
  • Flexible repayment schedule
  • Ability to use the cash how you want

However, investing on margin is risky, so use your funds wisely. Since M1 Finance doesn’t ask for regular principal repayments, you may be tempted to only make your monthly interest payment. Yet carrying a loan balance without paying it down will add up over time.

Used wisely, M1 Borrow margin loans can enhance your gains or pay for unexpected costs in a pinch. But if you’re not careful, a margin loan can cost you a pretty penny in interest.

At the end of the day, whether or not you should use a margin loan depends on you. Consider your financial needs, investment strategy, and risk tolerance – or, if in doubt, ask a financial advisor.

🔔 Looking to compare more options? Check out this list of the top 10 investing apps.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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