What are the downsides to securities loans?
A portfolio loan or line of credit isn't right for everyone. Here are some downsides to consider:
- The bank will put a hold on your collateral. While your investment account will continue to earn interest and dividends, you may not be able to withdrawal large amounts from your collateral account without paying off your loan first. Depending on your loan amount, that could lock in a large percentage of your assets.
- If the value of your collateral declines, the lender can call the loan.6 This means you'd be asked to pay off the loan or deposit more money into the account. If you are not able to do either of these, the bank can sell your collateral without your approval.
- Securities loans are usually at a variable interest rate. While interest rates are very low right now, but they may not stay that way. If they go up, the amount you owe could be more than you expected to pay.
Keep in mind, portfolio loans don't allow you to use assets in a retirement account as collateral. For that, you should look into borrowing from your 401(k).
Securities loans can be a good deal if you have plenty of collateral that you don't need or want to sell in the near future. But be cautious. These loans aren't for everyone. Consider your individual situation before you decide. A trusted Synovus adviser can help you decide if this type of loan is right for you.