Pledged Asset Line: How It Works & Why Investors Use It

Unlock liquidity without selling investments! Learn how a Pledged Asset Line works and its benefits for investors. #Finance #Investing

last updated Tuesday, February 4, 2025
#Pledged Asset Line #charles schwab pledged asset line

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John Burson

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A Pledged Asset Line (PAL) is a tool that allows investors to unlock liquidity without selling their investments.

You can access a flexible line of credit while keeping your portfolio intact by pledging assets such as stocks, bonds, or mutual funds as collateral.

Pledged Asset Line: How It Works

Instead of liquidating investments and triggering capital gains taxes, a Pledged Asset Line lets you borrow against your portfolio at competitive interest rates. Here’s how it works:

1. Collateral Requirement
   Financial institutions approve PALs based on the value and type of assets pledged.
2. Flexible Borrowing
   Funds can be used for real estate, business investments, or personal expenses.
3. Risk Management
   Lenders may require additional collateral or partial repayment if asset values drop.

Benefits of a Pledged Asset Line

For high-net-worth individuals and savvy investors, a Pledged Asset Line offers a strategic way to leverage assets without disrupting long-term financial goals.

• Tax Efficiency
  Avoid capital gains taxes from selling investments.
• Low Interest Rates
  Typically lower than unsecured loans.
• Portfolio Growth
  Keep investments growing while accessing liquidity.

Pledged Asset Line Interest Rate on 1/2025 by Schwab

The interest rate for a pledged asset line (PAL) is variable and depends on the collateral's value, the loan's size, and other factors. 

The interest rate is calculated by adding the Secured Overnight Financing Rate (SOFR) to an interest rate spread. 

The initial variable annual percentage rate on the Pledged Asset Line based on the loan value of the collateral pledged at origination is the sum of the SOFR index rate plus the applicable interest rate spread shown above. Pledged Asset Line amounts begin at $100,000.

Rates below do not include Investor Pricing discounts:

• Interest Rate Discount 0.50% 0.25% $250K-<$1M in qualifying assets
• Interest Rate Discount 0.50% $1M-<$5M in qualifying assets
• Interest Rate Discount 0.75% $5M-<$10M in qualifying assets
• Interest Rate Discount 1.00% $10M+ in qualifying assets

Loan value of collateral at origination	SOFR* + Interest Rate Spread	Annual percentage rate (APR)
$100,000 to <$250,000	SOFR + 4.40%	8.69% - discount
$250,000 to <$500,000	SOFR + 3.90%	8.19% - discount
$500,000 to <$1,000,000	SOFR + 3.40%	7.69% - discount
$1,000,000 to <$2,500,000	SOFR + 2.90%	7.19% - discount
$2,500,000 and above	SOFR + 2.40%	6.69% - discount

table 1. Charles Schwab pledged asset line

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