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Liquidating your investment accounts and other assets can have big implications for your taxes and financial wellbeing. To help avoid that, Charles Schwab offers a secured line of credit that can give you access to your money without having to sell off your securities. But you’ll need to have at least $100,000 in investments to qualify, and there is some risk.
What makes a Charles Schwab Pledged Asset Line unique?
The Pledged Asset Line (PAL) is one of the few loan options available if you bank with Charles Schwab. It stands out thanks to its high borrowing limits of up to $20 million — ideal if you’re looking to invest in real estate or grow your business.
What is a Charles Schwab Pledged Asset Line?
A Charles Schwab Pledged Asset Line is a revolving line of credit secured by your liquid assets. Your credit line is determined by the collateral you have, but you may be able to borrow anywhere from $10,000 to $20 million. It comes with a 5 years draw period and variable interest rates based on the one-month LIBOR index.
You can use a variety of assets as collateral, including:
Marginable equity securities valued at $3 or more per share
Exchange-traded funds (ETFs)
Certificates of deposit (CDs)
Corporate, municipal and government bonds
Funds from your PAL can be used for nearly any legal purpose, including funding your business and buying real estate. However, you can’t use your loan to purchase securities, pay down margin loans or fund a Charles Schwab brokerage account.
Must read: Your assets will be held in a Charles Schwab brokerage account
When you open a Pledged Asset Line, your collateral will be placed in a brokerage account, known as a Pledged Asset Account at Schwab Bank (PAASB). While there’s no fee to open or maintain this account, you’ll face some limitations. These include:
No payment features, such as writing checks, using a debit card or paying bills
No option trading or margin capability
In addition, you won’t be able to withdraw your funds from the account without making a formal request with Charles Schwab.
What are the benefits of a Charles Schwab Pledged Asset Line?
From its relatively long draw period to its high borrowing amounts, here are a few perks of opening a Pledged Asset Line:
Borrow up to 75% of your total liquid assets. This can include assets held at another institution, as long as they’re verified. However, retirement funds are ineligible.
Long draw period. When you open a PAL, you’ll be able to borrow from your line for five years.
Large loan amounts. Provided you have the assets to secure your line, you can borrow up to $20 million.
What to watch out for
Opening a Pledged Asset Line carries some risk. Consider these potential drawbacks before signing the dotted line:
Uses compound interest. When you draw from your line, interest begins to accumulate each day you owe a balance and may be added to your loan principal — making it more expensive in the long run.
High minimum amount. You’ll need to have at least $134,000 in eligible assets to open a PAL.
May be a risky investment. If the market takes a hit, you might need to sell off your securities to maintain equity.
Must open a Charles Schwab brokerage account. Your collateral will be held in a specialized account at Charles Schwab while your Pledged Asset Line is open.
Compare unsecured personal loans instead
Updated October 16th, 2019
Am I eligible?
Charles Schwab doesn’t list any specific requirements to open a Pledged Asset Line. At the very minimum, you’ll need to have at least $134,000 in eligible assets to secure your line.
How do I apply?
You can apply for a Pledged Asset Line by calling 888-725-3630 or visiting your local Charles Schwab branch. Or if you’d rather have someone contact you, you can fill out a quick online form:
Visit Charles Schwab’s website and hover over What We Offer.
Click Pledged Asset Line under Banking.
Scroll down and click Request more PAL information.
Enter your full name, email address and phone number.
Select your client status, the amount you’re interested in and the purpose of your PAL.
A Charles Schwab banking specialist should get in touch with next steps.
I got a Pledged Asset Line. Now what?
Once you open a PAL, you can draw from it whenever you need over a five-year period. Interest accrues daily, but there are no prepayment penalties — so you might want to pay off at least the interest that adds up each month to avoid it being capitalized and added to your loan principal.
Keep an eye on the lending market and your investments to make sure you have enough equity available to borrow against. Have questions? Reach out to a Charles Schwab banking specialist by calling 888-403-9000 or visiting your local branch.
A Pledged Asset Line from Charles Schwab allows you to take advantage of your investments without selling them. But there are inherent risks to borrowing against your assets, and you may find that the minimum loan amount is too high to meet your needs. Before you dive in, explore other loans available at Charles Schwab. Or compare even more personal loan providers.
Your variable rate is based on the one-month LIBOR index plus an interest rate spread, which is determined by your credit limit when you first open your Pledged Asset Line.
To contact Schwab Bank, you can visit your local branch, call its general helpline at 866-855-9102 or use the chat feature on its website.
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