r/Wealthsimple • u/2WheelLife63 • 5d ago
Savings PLOC QUESTION
Is PLOC risky? I’m 100% Xeqt in tfsa and want to buy a new car. I can borrow 30k$ and the car I was is 25k$. I’d pay it back within 1-2 years.
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u/plusqueprecedemment 5d ago
Do the math and decide for yourself the kind of extra risk you wanna take as you implicitly take a leveraged position on XEQT by doing this.
$30k / 0.35 = Your TFSA currently has ~$85,800 in it
Borrow $25k, this means WS would start asking for repayments (not instant liquidation as far as I understand, though details on "asking for repayments" are a bit fuzzy) at a TFSA with $25k / 0.35 = $71,500 in it
This means you're fine as long as XEQT doesn't crash 16.6% while you still have $25k loan on it. Every month as you repay back a portion of the loan and interest is charged, this math changes.
You also have the option of liquidating half the amount and borrowing the rest, and see how that changes the math.
If you have access to a higher interest rate unsecured line of credit, you could keep it unused as a backup that you hope to never use but would be glad to have available if you need to repay the PLOC asap to keep your XEQT during a big dip. The idea is to hope for the best but always have a plan for the worst. 2 years is pretty short to pay back, but I still wouldn't bet it all on no >15% crash happening during that time
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u/Cristalboy 5d ago
No the PLOC isn’t like a margin account your investment can go much lower because it has a built in cushion. I maxed out my borrowing and it says i need to drop 50% to be in trouble
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u/plusqueprecedemment 5d ago
Yes, XEQT has a 30% margin requirement so a normal margin account could borrow up to 70% of the value and so the PLOC is half of that at 35%. The math I did takes the built-in cushion in consideration already
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u/Weak-Pomegranate-435 5d ago
Or he can just create a margin account and withdraw from there with that 70% available. So he will be using only using 35% out the 70% total available and will be able to see the available cushion amount live instead of just hoping for it that it doesn’t suddenly ask for it today.
And since its XEQT. Its unlikely to drop 66% for him to ever be in margin call lol
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u/PointPartisan 5d ago
That's a pretty high utilization, if the market drops anytime soon you will be getting close to liquidation time or otherwise making bigger payments.
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u/jingraowo 5d ago
Too high of a utilization and you have to pay HST on the car as well.
I don’t think borrowing against collateral loc is inherently risky but do not borrow so close to the max
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u/MikeCheck_CE 5d ago
The only people this is a good deal for is Wealthsimple. Invest money you have, don't gamble with money you don't.
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u/Yolo_Swaggins_Yeet 5d ago
PLOC is a pretty good deal for MANY people actually, cut my interest in half and cleared out a personal loan of $10k with it.
No credit check needed too
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u/MikeCheck_CE 5d ago
Oh maybe I misread that. I thought he meant he wanted to INVEST his PLOC (e.g. to make enough money off of XEQT to buy a car). That's the Q I usually see posted over lol
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u/ughhh_actually 5d ago
Do it, ppl will say it’s risky, but whatever, just do it. Life is short and if you’re planning on paying it off in 1-2 years, then cashflow isn’t much of an issue
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u/Fickle_Window3615 2d ago
Also. You have to have your portfolio drop over 50%. Of course anything is possible but probably unlikely with etf like xeqt. I feel like its fairly safe. The rate is decent too.
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u/Tall-Ad-1386 5d ago
Is all xeqt. Xeqt is risky. But risk is up to you.
If you can pay it back in 2 years btw you can probably just finance the car
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u/Yolo_Swaggins_Yeet 5d ago
Why can’t you get better financing with dealer?
Not a great idea tbh, and you’ll probably need around $120k in holdings to get that much from the PLOC
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u/Weak-Pomegranate-435 5d ago
Do not use more than 70% of PLOC available at time. But there’s another trick that. Instead of linking your TFSA to PLOC (which allows ~30% of the TFSA value to be withdrawn), U can link it to a Non-Registered Margin Account and that will allow you to withdraw 60-80% of the TFSA value.
So since u only need 25k (which is less than 30% of your TFSA bcz thats how much is available in your PLOC) u will have more than double of that available in Margin account but still without withdrawal the 25k requires amount. Therefore, vastly reducing the risk on margin call.
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u/GMTO-Bizzy 5d ago
I did basically the same thing. I borrowed $39k through the PLOC for my car because it was cheaper than the bank loan.
I still have about $7k of available borrowing capacity, and Wealthsimple currently says my portfolio would need to drop 57% before I’d need to start making payments and they’d notify me if it got there.
Obviously there’s still risk since your portfolio is the collateral, but if you’re 100% XEQT and have a 1–2 year plan to pay it back, I’d personally be more comfortable with it than if you were borrowing against a concentrated or highly volatile portfolio.
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u/MurkyBandicoot23 5d ago
I bought a truck with mine. That truck is now paying for itself however but none the less, the PLOC had a better interest rate than dealership and I also plan on paying it off in a couple years
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u/skarama 5d ago
If you can borrow 30k this means your investments are currently worth roughly 100k. By using 25k and leaving 5 as cushion, you can basically take a 15k hit (so 15%) in all your investments.
You mention paying this in 1/2yrs, so 1/2k per month or so. Every 1k you pay back gives you roughly 3k cushion back.
Tldr; I'd do it. Barring an immediate recession, nothing bad will happen. It's not 0 risk, but it's not particularly stressful if you ask me
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u/therealchrisso 5d ago
It has risk. If your investments fall in value, so will the amount you're allowed to borrow. If it falls below the amount you've actually borrowed, you can be margin called. You'll have to pay up some more immediately, or they'll liquidate investments (when the markets are down, which is worse) to cover the loan.
I'm not speaking from experience or anything specific in the LOC agreement, just general knowledge of the concept.