Selling stock to raise cash closes the position. It also books a tax liability on whatever the holding has gained and removes any future upside on what was sold.
Some consumers are skipping all of that by borrowing against their portfolios instead, paying interest on a loan rather than giving up the asset and the exposure that came with it.
Schwab, Fidelity, and other large brokerages have offered pledged asset lines to qualifying clients for years. The setup lets investors borrow against equities and other securities at competitive rates, with no need to sell.
Getting in has traditionally required a large account, but products designed for a wider range of consumers are beginning to offer a similar structure at lower entry points.
In Europe, cardholders who can borrow against investment holdings are using those credit lines for groceries, travel, hotel bookings, and dining rather than cashing out the underlying assets, according to a Nexo report.
The purchases look like any ordinary card statement. The funding behind them is a different story.
Why borrow against stocks instead of selling them?
Taxes are a big part of this. When you sell a stock that has gone up, the government takes a cut before you can spend a dollar of the proceeds.
Borrow against that same stock instead, and nothing is taxed. The position keeps running. Some consumers run that math and decide the interest on a loan is cheaper than what selling would have cost them, especially if they expect the asset to keep rising.
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Wealthy investors have used a version of this for decades, calling it the “buy, borrow, die” strategy. The idea is to accumulate assets, hold them and borrow against them for living expenses rather than selling, deferring the tax indefinitely.
It has been well documented in private banking. Accessing it has been the harder part for most people.
Roman Yermoshyn, general manager at GoBTC Pay, told TheStreet the old thinking about wealth is starting to give way.
“Nobody sells their house to buy groceries,” Yermoshyn said. “Wealth is no longer a vault you open at retirement. It’s something people want to use now, without cutting down the tree to pick the fruit.”
How pledged asset lines differ from a credit card or personal loan
A credit card or personal loan is priced on the borrower’s income and payment history. No collateral means higher rates, and the Fed has warned cardholders about carrying those balances as rates have climbed.
Asset-backed lending cuts through most of that. The portfolio is the collateral. The rate tends to come down. There is no credit check and no income documentation required.
Repayment is different, too. Credit cards want a minimum payment every month. Personal loans run on a fixed schedule. Asset-backed lines have neither.
The borrower pays interest on whatever is outstanding and repays in full or in part whenever it suits them. For founders, freelancers, and others whose income comes in unevenly, that is often the more workable option, regardless of what their balance sheet looks like.
Yasen Yankov, head of product management at Nexo, told TheStreet the structure reflects how experienced investors have always approached the question of liquidity.
“What we are seeing is a fundamental change in how people think about wealth,” Yankov said. “Selling is a more final decision that interrupts your exposure. Borrowing against assets keeps the long-term position intact while giving access to its value today, when or if it’s needed.”
The risk of losing the collateral
These loans are backed by assets that change in price every day. If the collateral falls too far, the platform does not call. It just sells.
The borrower may not know it’s happened until they check and the position is already gone. Missing a credit card payment hurts a credit score. Losing collateral wipes the position entirely. Those are not the same thing.
Yermoshyn put the difference plainly. “Miss a credit card payment and your score takes a hit,” he added. “Let your collateral fall and you face a margin call or liquidation. A credit card punishes you slowly. A crypto loan can punish you overnight.”
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Before signing up, it helps to know two specific numbers: the loan-to-value ratio the lender uses and the threshold that triggers an automatic sale. Keeping the borrowed amount well below the maximum leaves room for a price drop before the platform steps in.
That gap matters. These products are built for a specific situation: a known expense, a plan to repay. Using one to cover ongoing spending without a repayment plan is a different risk entirely.
Who asset-backed lending actually works for
Securities-backed lending has been a standard tool at major brokerages for a long time, used for real estate purchases, business funding, and short-term liquidity needs. The concept is not new or untested at the institutional level.
The difference now is that products built on the same logic are reaching investors who would never have qualified for a traditional pledged asset line.
The consumer best suited for this has a specific profile. They are holding something they do not want to sell, they have a near-term cash need, and they already know how the balance gets repaid.
For that person, the math usually works in their favor. The tax event gets pushed out. The rate tends to come in below what a credit card or personal loan would charge. The position keeps running.
Anyone going in without a repayment plan is in a different situation. The collateral can be sold without a call. Interest builds whether or not the market is cooperating.
A sharp drop in the asset that made it worth holding in the first place can be what takes the position away. Getting familiar with how that works before signing up is not optional.
That is the difference between using the product well and getting caught out by it.
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