Should you take out a loan backed by your investments?

Should you take out a loan backed by your investments?

Dubai: If you have your savings parked in stocks, bonds, or other financial assets, it’s very likely your investment bank or brokerage firm may have offered you a securities-based loan. When you are offered a securities-backed loan, you are essentially borrowing money while using stocks, bonds or any other assets that are held in your investment accounts as collateral. “Generally, securities-backed loans are made available by the larger banks and financial institutions, brokerages or advisory firms,” explained Mirin Raul, a debt advisor based in Dubai. “As it’s a short-term lending option, securities-backed loans can last anything from a few days or weeks to around three years at maximum, although twelve to twenty-four months is more typical.” If you don’t understand what you're signing up for with a securities-based loan, you’d be risking your hard-earned savings and possibly facing significant losses. “Securities-based lending provides capital to help people buy real estate, to purchase personal property, or to invest in a business,” added Raul. “These kinds of loans are generally offered to individuals who have a significant degree of capital by large financial institutions and private banks.” But how does it work? Here’s how. Banks or brokers determine the value of the