The interest rate is the sum of (a) a benchmark rate that is can change daily plus (b) a spread. For US loans, the most common benchmark is the SOFR - Secured Overnight Financing Rate. The SOFR is replacing the LIBOR as the standard benchmark across many adjustable rate loans. The spread, or margin, is the extra interest charged on top of the benchmark rate. As you increase your collateral with brokerages, they often lower this spread. While many brokerages offer margin accounts, the borrowed funds must be used exclusively for securities trading and cannot be withdrawn. Both Interactive Brokers (IBKR) and Charles Schwab calculate interest using SOFR, which tracks the Fed funds target. SOFR moves a lot: it sat at 0.05% in January 2022, climbed past 5% across 2023–2024 as the Fed tightened, and has eased back from those peaks as the Fed cut through 2025 into 2026. Treat any specific rate quoted in this book as a dated snapshot — look up the live print on the New York Fed page before sizing an ABL strategy.
Margin Loans do not have this restriction and are unusual in this regard. Very low margin rates. The spreads are “unbelievably low” the first time you see them. You can do pretty much anything you want with the money, so it serves as a general purpose loan. If you are in a hurry, an IBKR margin loan is probably your best bet.
(not their margin loan). The spreads listed are higher than those offered by IBKR but are more favorable than the standard margin rates from many brokerages, including Schwab’s own margin accounts. PAL loans, interestingly, do not have a fixed maturity date as of 2024. This means you can use PAL loans for long-term financial commitments, such as a down payment on a property, which might not be liquidated for many years or even decades. Setting up a PAL account with Schwab, transferring funds, and getting approval typically takes between 3 to 6 weeks. A useful tip is to negotiate with Schwab for lower PAL rates by mentioning a competitive offer from IBKR. Persistence is key here, and your chances of securing a reduced interest rate generally improve with the amount of collateral you offer. Expect to need at least $100,000 USD to be considered for serious negotiation.
When evaluating the spread you receive, keep it in context and don’t solely compare it to IBKR’s rates. A spread of 3% is quite favorable; 2% is outstanding; and 1.25% is exceptionally good.
. Some but not all details are here.
. Minimum investment of $2K. Spread seems to 3.4% (M1). There is a higher level product M1 Plus, but this may require a large balance. Borrow up to 40% of your assets.
Portfolio Line of Credit Minimum account size is $25K. The spread varies from 3.6% (up to $500K) down to 2.35% ($1M+). It is unclear if you can negotiate this rate. Borrow up to up to 70% of your assets.
Opting for a low-interest, asset-backed loan can be your smartest move when planning a significant “purchase”. This approach often outperforms paying in cash, provided certain conditions are met:
If the return on your assets exceeds the interest rate on your ABL, then utilizing an ABL is a smart move. It’s a beneficial form of leverage, especially if you have significant assets, which often qualify for lower interest rates. As long as you borrow responsibly, an ABL is advantageous. Plus, since you’re not selling your assets, you avoid capital gains taxes.
Asset-backed loans offer a strategic financing option that can enhance your financial flexibility while allowing you to retain and potentially grow your investment portfolio. Model the borrowing costs and margin call thresholds carefully to ensure this leverage remains a strategic asset rather than a liability.