Using stocks as collateral for a loan is possible through a product most brokerages and private banks offer called a securities-based line of credit, sometimes marketed as a pledged asset line or portfolio line of credit. You pledge the stocks, bonds, or funds in your brokerage account, the lender places a lien on that account, and you draw against a revolving credit line at rates that usually beat personal loans and credit cards. You keep your positions, keep collecting dividends, and avoid the capital gains tax that a sale would trigger. The catch is that if your portfolio drops far enough, the lender can sell your holdings to cover the loan, and it does not have to ask first.
How a Securities-Based Loan Is Structured
The legal mechanism is hypothecation: you pledge assets as collateral without giving up ownership. The lender files a UCC-1 financing statement against the pledged account, which gives it the right to seize the assets on default. You still own the securities, still receive dividends, and still benefit from price appreciation. The lender’s claim only activates if something goes wrong.
Because the collateral is liquid enough to sell on any trading day, underwriting is light and approval is fast compared to a mortgage or a business loan. You draw against the line like a home equity line, pay interest only on the balance you carry, and repay on a flexible schedule.
What You Cannot Do With the Money
One federal rule shapes the whole product. Under the Federal Reserve’s Regulation U, a loan secured by stocks cannot be used to buy or carry additional securities. That purpose is what a margin loan (governed by Regulation T) is for, and the two products are not interchangeable.
When a bank extends more than $100,000 in credit secured by margin stock, the borrower must complete a purpose statement on Form FR U-1 describing exactly what the funds will be used for. The bank officer reviewing it has to accept the statement in good faith and investigate anything that looks off. Lying on the form violates Regulation X and carries federal penalties.
Compliant uses include buying real estate, funding a business, paying tuition, or covering a tax bill. Essentially any non-securities purpose is fine.
How Much You Can Borrow
Your credit line is a percentage of the market value of your pledged holdings, and each security gets its own loan-to-value ratio based on how liquid and volatile it is. Broad index funds and blue-chip stocks receive the highest ratios, often 50% to 70% of market value. A $500,000 portfolio with a blended 60% LTV produces roughly a $300,000 line.
Concentrated positions and volatile sectors take a steeper “haircut.” If half your portfolio sits in one company’s shares, the lender applies a larger discount to that piece. Regulation U caps the maximum loan value for margin stock at 50% of current market value, and individual lenders may go higher or lower depending on the asset mix.
Your available credit is not fixed. It moves with the daily market value of the pledged portfolio, so a 10% drop shrinks both your portfolio and your borrowing capacity at the same time.
Which Holdings Qualify
Publicly traded stocks on major exchanges, investment-grade bonds, and shares in widely held mutual funds and ETFs form the core of eligible collateral. Restricted stock from employee compensation plans, private equity, venture capital interests, and thinly traded stocks are typically excluded or assigned an LTV so low they add nothing to the line. Lenders also reassess eligibility on an ongoing basis; if a stock’s volatility jumps or its volume drops, it can be reclassified, and your limit shrinks with it.
Interest Rates and Fees
Rates are variable and usually benchmarked to the Secured Overnight Financing Rate (SOFR) plus a spread that shrinks as the loan grows. One major brokerage, for example, charges SOFR plus 3.10% on lines between $100,000 and $499,999, dropping to SOFR plus 1.90% on lines of $3 million or more. These rates generally undercut unsecured personal loans and credit cards, but they move with prevailing rates for the life of the loan.
Beyond interest, the cost structure is thin. Most firms charge no origination fee, no closing costs, and no appraisal, because the collateral is marked to market every day. Some states charge a small UCC-1 filing fee, and that is usually the extent of it.
Who Qualifies
Qualification looks nothing like a normal loan application. Because the loan is fully collateralized by liquid assets the lender already controls, some firms skip the credit check entirely and set your limit based on the value and composition of the pledged portfolio. You do generally need a meaningful account balance; $100,000 in eligible securities is a common floor, though the exact number varies by firm.
The real gate is the quality of your holdings. A diversified portfolio of public stocks and investment-grade bonds sails through. A concentrated employer-stock position or an account heavy in illiquid interests may either be rejected or produce a line too small to matter.
Tax Consequences
Borrowing money is not a taxable event. Loan proceeds are not income because you have an offsetting obligation to repay them. That is the whole tax rationale for pledging appreciated stock instead of selling it: a $1 million position with a $200,000 basis produces roughly $800,000 of taxable gain on sale and zero on a loan.
Interest deductibility depends entirely on how you use the money. Personal uses like a car or a vacation make the interest nondeductible personal interest. Investment uses, such as buying rental property, make it investment interest, which is deductible only up to your net investment income for the year, with the excess carrying forward. Business uses may make it fully deductible as a business expense.
The investment interest limitation is tighter than it looks. Net investment income includes interest, non-qualified dividends, and short-term capital gains, but excludes long-term capital gains and qualified dividends unless you elect to include them and give up their preferential rates. If your investment income is mostly long-term appreciation, the effective deduction ceiling can be quite low.
A forced sale by the lender is a taxable event just like a voluntary one. Gain or loss is recognized based on sale price minus basis. Low-basis shares sold in a margin call can produce a large capital gain and a tax bill on top of the market loss that caused the call. And if the liquidation happens at a loss and you repurchase substantially identical securities within 30 days, the wash sale rule disallows the loss for the current year, adding it to the basis of the replacement shares instead.
Margin Calls and Forced Liquidation
This is where these loans can turn quickly. Every agreement sets a maintenance requirement: the minimum ratio of collateral value to outstanding loan balance. Stay above it and nothing happens. Drop below it and you get a maintenance call requiring you to restore the ratio with cash, additional pledged securities, or a paydown. FINRA notes that lenders typically give two or three days to meet a maintenance call.
The lender is not required to call you first. Under most agreements, the firm can sell your securities without consulting you and without waiting. The SEC has warned that investors have been shocked to find brokerage firms exercising the right to sell margined securities without notification and potentially at a substantial loss, and the same principle governs securities-based credit lines. You also do not get to choose which holdings are sold; the lender picks whatever is most efficient for restoring compliance.
These are also demand loans. The lender can call the entire balance due at any time, for any reason, even if your collateral has not declined. A shift in the firm’s risk appetite or an internal policy change is enough.
The Buy-Borrow-Die Strategy
Securities-based lending sits at the center of a widely discussed wealth planning strategy. Buy appreciated assets, borrow against them instead of selling, and hold until death, at which point heirs receive a stepped-up basis equal to fair market value on the date of death. Stock bought at $50 and worth $500 at death passes to heirs with a $500 basis, and the lifetime appreciation escapes capital gains tax.
The strategy is legal, and it is a major reason wealthy investors favor these lines. Legislative proposals to limit or eliminate the step-up in basis have surfaced but none have been enacted as of 2026. Two risks sit alongside the policy risk: interest keeps accruing for as long as you carry the debt, and a bad market can unwind the whole structure through margin calls before the plan ever pays off.
Managing the Risk
The convenience of a securities-based line can hide how quickly it can hurt you. Variable rates mean your borrowing cost climbs in a rising-rate cycle, and you have no fixed-rate refuge. A market drop can trigger a maintenance call you cannot meet, forcing sales at depressed prices that lock in losses, generate tax on any embedded gains, and leave you without the shares you would need to participate in the recovery. The borrowers who get hurt worst are the ones who draw close to their maximum and leave no buffer.
A workable approach is to borrow well under the maximum, keep cash reserves that could meet a call without touching the portfolio, and treat the low interest rate as a feature rather than a reason to draw more. Cheap capital is not cheap if a forced sale erases years of gains.