A fidelity pledged asset line is a line of credit you can draw against your property if you have an emergency or need for quick money. This type of loan doesn’t have application fees, account maintenance fees, or monthly interest charges. You can draw money up to the amount approved by the lender and then repay the loan whenever you want. There are some things to consider before applying for a pledged asset line of credit, though.
Interest rates
A pledged asset line of credit works very well for short-term financing of major purchases. The lender automatically credits the interest owed to your Fidelity account each month. Interest rates vary based on market conditions, but a current annualized lending rate of 8.50% is a common benchmark. It’s calculated based on the relative value of the loaned security, which is determined by borrowing demand, short-selling, and general market conditions.
Application fees
If you’re in the market for a loan, you might be wondering if a fidelity pledged asset line of credit is right for you. In many ways, this type of credit card is similar to a secured loan. Applicants must have a checking account with Fidelity Bank, and the line of credit is issued at a variable rate, prime plus margin, based on your credit score. The rate can change without notice, and the balance is due at the end of the three-year term or refinances into another loan.
Pledged asset lines are excellent for many people. They can help you pay off credit card debt faster, keep track of your investments, and reduce the overall amount of interest paid. While they may seem like a complex products, they can save investors tens of thousands of dollars if used correctly and responsibly. For example, if you need to buy a new home or make other major purchases, a fidelity pledged asset line could allow you to keep your investment positions untouched.
Tax implications
If you are thinking about applying for a fidelity pledged asset line, make sure to carefully consider the tax implications. This type of loan allows investors to borrow up to $1 million against their existing assets. If you are using the PAL to pay off credit card debt, you need to make sure to maintain an account balance of at least $1 million. If you do not have this amount of money available, you may have to sell your assets or transfer the shortfall to your account to meet collateral requirements.
This type of loan is not suitable for everyone, and it carries a high degree of risk. While market conditions may magnify the risk, the investment may pay off and generate a profit or loss. In some cases, a lender will require you to sell your securities, even if they are no longer worth much. While Wells Fargo Advisors will do their best to inform you of these maintenance calls, you should know that you may not receive advance notice of them. In addition, you might be required to sell securities, which could have adverse tax consequences.
Liquidation of securities as collateral
A securities-based line of credit (SBLOC) provides liquidity without requiring the liquidation of an investor’s investment portfolio. Marketable securities such as stocks, bonds, and mutual funds are used as collateral. These lines of credit fit into an overall wealth plan and help investors balance short-term needs with long-term goals. To learn more, read our guide to using securities-based lines of credit.
Securities-based lending has special risks and is not suitable for all investors. If the value of the securities pledged as collateral falls below the amount owed, the client may be required to repay the line of credit and pledge additional securities to meet the loan balance. If the value of the securities pledged as collateral declines beyond the limit of the line of credit, the lender may require the sale of securities to cover the loan.
Wells Fargo Advisors will make every effort to notify clients of these maintenance calls. However, in some cases, they may not be able to notify their clients of such calls and they may not inform them of them. In addition, selling the securities may result in adverse tax consequences.
Maintenance call
If you’re a homeowner with a fidelity pledged asset line of credit, you’re probably wondering when you’ll receive a maintenance call. The call may be issued because the equity in your property has fallen below the minimum amount required to service the line of credit. In this case, the firm will use its rights under the rules of the agreement to call you. However, if you don’t receive one within a short period of time, you may find yourself having to post additional collateral or borrow cash to meet your maintenance call.