Provided by RBC Wealth Management and Thomas J. Powers
Like many Americans, the idea of having debt may be a concern for you. But there are good kinds of debt, like loans for college or a home you can afford— things that contribute to your wellbeing. And there are bad kinds of debt, like high interest loans that can be a drag on you financially.
Securities-based lending is an example of a potentially good kind of debt. And used strategically, it can be a practical and integral part of your overall wealth planning process. Indeed, taking time to qualify for a securities-based loan or line of credit now—before you have a financing need—may offer a practical source of funding that may help you prepare for just about anything.
Here’s why. By pledging eligible portfolio assets as loan collateral to borrow money, you may qualify to get fast access to cash and potentially avoid possible tax liabilities and transaction costs of selling securities. It also helps keep your investment strategy intact, so your portfolio continues working toward your long-term goals.
A securities-based line of credit or loan can offer the following benefits.
Use securities-based lending to finance a variety of goals—to pay for a car, boat or vacation, remodel your home, invest in your business, help your grown children pay for a wedding—the list goes on and on. It is also a great way to respond when the unexpected happens, such as needing a major car repair or a new roof after a natural disaster.
Compared to other sources of financing, setting up a securities-based loan can be relatively straight-forward. There are generally no costs and no charges to you until you borrow money.
Reasonable terms and competitive rates
As a non-amortizing loan, securities-based loans typically offer competitive interest rates. You simply make the monthly interest payments and can pay off the loan principal on your own terms.
Although securities-based loans can be useful, there are risks to understand. The value of your securities are pledged as collateral to secure the loan, which means your account must maintain a minimum value.
If it falls below this minimum, you will need to immediately deposit cash or other securities. Securities may also be sold out of your account to maintain the minimum value.
Still, you may find that a securities-based loan can give you the freedom to make those financial moves you could not otherwise make without incurring significant costs—either the monetary costs of more expensive loans or the opportunity costs of having to liquidate long-term investments to meet short-term needs.
Securities-based loans involve special risks and are not suitable for everyone. You should review the provisions of any agreement and related disclosures, and consult with your own independent tax and legal advisors about any questions you have prior to using securities-based loans or lines of credit. Additional restrictions may apply.
RBC Wealth Management, a division of RBC
Capital Markets, LLC, is a registered Broker-Dealer, Member FINRA/NYSE/SIPC, and is not a bank. RBC Capital Markets, LLC and its affiliates and their employees do not provide tax or legal advice. Lending services are offered to RBC Wealth Management clients by different entities. RBC Wealth Management and/or your financial advisor may receive compensation in conjunction with offering or referring these services.
This article is provided by RBC Wealth Management on behalf of Thomas J. Powers, a Financial Advisor at RBC Wealth Management, and may not be exclusive to this publication. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC