This kind of lending program should not be confused with a margin loan. When taking a margin loan, an investor is leveraging assets usually to purchase additional securities. Furthermore, a margin loan will only allow the investor to borrow 50 percent of the value of the pledged assets, a limit that is imposed by the Federal REserve Board. In addition, margin loans do not offer a billing feature that results in interest being added to the margin loan balance. As a result, dividends, interest, and or deposits to the margin account automatically reduce the outstanding loan balance.
Some investors prefer a seperate billing statement to help manage their debt.
However, the money may not be used directly or indirectly to purchase securities, to pay off margin debt or to repay debt incurred to purchase securities. However, securities held in a qualified retirement account, or an IRA, cannot be used as collateral for a loan. When it becomes necessary to raise capital, investors should consider their options and match the right credit tool with their needs. By exploring different debt vehicles with a financial advisor and getting a proper analysis of their current financial sutuations, many investors can find solutions that will help enable them to achieve their financial goals more cost-effectively and build net worth by managing liability.