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The call money rate is the rate of interest that is charged by lending institutions when extending loans to brokers for the purpose of financing margin loans for clients of the brokerage firm. Sometimes referred to as a broker loan rate, the call money rate is usually a special rate that is not usually available to individual investors. Part of the provisions for obtaining the call money rate requires the intervention of the broker, who functions as a reference for the investor and retains some degree of responsibility in the repayment of the loan.
Typically, the brokerage firm does not just act as the go between to connect investor and bank in order to finance margin loans. The broker will be active in the solicitation and drafting of the loan agreement. In fact, the loan will go directly to the broker, who then will charge the amount of the call money rate plus a service charge to the investor’s account. Thus, the brokerage receives payment for services rendered on the front end, and is able to use the funds immediately to execute the security order on behalf of the client.
The call money rate on most margin loans is one of the best interest rate options that are issued under any circumstances. Of course, a number of factors can impact the rate of interest that is extended, such as the credit rating of the investor, the relationship of the brokers with the lending institution in question, current interest rates in general, and the amount of money that is involved in the transaction. This means that the call money rate actually will save the investor money, since the ultimate cost of the loan will be less than could be obtained in other ways. Even with the addition of the surcharge that is applied by the brokerage firm, the overall cost still remains very competitive.
Explanation seems bit confusing. Some real example could have clarified the concept.
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