Pledged loans are a very particular financing product, through which the amount demanded is linked to an investment product, such as an investment fund or a stock exchange. In this article, we will talk about the advantages and disadvantages of this product, as well as where you can get it.
What are loans with the pledging of an investment product?
Of course, there are many possibilities when applying for a loan. One of the most particular is that which materializes through loans with the pledging of some financial asset derived from the investment. As for example, investment funds, stocks in stock or other financial products of similar characteristics. Well, if you have hired any of these products you will be able to subscribe to a loan of these characteristics.
In any case, you should know that loans with pledging investment funds or shares are somewhat special and you may not know what their mechanics are. First, the pledge consists of immobilizing a monetary asset that you will put as a guarantee of the operation. It does not have to be from equities (stocks, investment funds or warrants), but you can also pledge fixed-income assets (bonds, state letters or time deposits).
The percentage of financing granted by the bank that will go in relation to the value of the products that you have immobilized. In a sense, it is a guarantee that you use to grant you the loan since otherwise, you could not access this kind of financing so special that they offer you from the banking entities.
Pledged loans: what are their advantages?
If you are interested in formalizing this line of credit you will have no choice but to inform yourself of the benefits that are being reported to you at the moment. Among those that highlight the following we offer below:
- It provides liquidity for investments: although it is true that the money you have immobilized, it will not stop generating profitability during this period. A clear example would be dividends generated by shares: you will collect this share payment in full, although without the possibility of selling the shares.
- They offer greater flexibility: if the loans are characterized by something, it is because they adapt to any kind of demand with respect to their amount. Because, in effect, the greater the immobilized capital, the more possibilities you have to obtain more money in the form of a loan.
- Better conditions in the hiring: they usually carry a more beneficial interest rate for your interests and with the added advantage that it will be commercialized free of commissions for its cancellation or early amortization.
Some disadvantages of pledged loans
On the contrary, if you do not want to take the occasional surprise with the formalization of the pledged loans, it will be necessary that you have detected some of the problems that this kind of loans entail:
- Lower terms: the duration of the loan is usually shorter than in other more traditional forms of financing.
- For preferential customers: of course, not all user profiles are in a position to contract this kind of credit. It is very common that pledged loans are reserved for private banking clients and not for individuals, as is perhaps your case. For a very easy reason to explain, it is they who have more investment products and higher amounts than the rest. In addition, these types of clients usually have a higher than average level of financial knowledge. In fact, it is recommended that this be the case, due to the complexity of this type of contract.
- Rates linked to the client’s equity level and amounts linked to the type of product: normally the interest rate that is applied to these loans depends on the level of bonding or equity that the customer has with the entity. For its part, the quantity that can be requested is usually dependent on the type of product used as collateral, which is pledged. For example, if we pledge a variable income fund, we can surely ask for a lower percentage of the investment than if what we pledge is a fixed income fund, which is less volatile.
What banks sell pledged loans?
It is likely that not all banks will find the option to apply for a pledged loan. Not surprisingly, it is the clients of entities with more tradition in wealth management that have more facilities when requesting a loan pledged to an investment product.
One of the best known Spanish entities in the personal banking sector is Good Finance in which, through its financial advisors, the client can study the options of requesting a loan pledging investment products and under what conditions. Normally the conditions will be more advantageous than those of traditional consumer loans