Lombard loans for dummies

Could use some pointers here—what exactly is a Lombard loan, how does it actually work, and when is it even worth using? Anyone have any real-world experience with them?

Back in the day, my bank tried to pitch me one as a way to help bridge the gap on a mortgage... I'm still trying to wrap my head around how that even makes sense.

Check this out. Most of the discussion in this thread is just people obsessing over payday lenders. 😉

A Lombard loan is basically just a cash loan you secure by using your own assets as collateral:
- liquid funds
- savings accounts
- insurance policies
- home savings plans
- stocks

The total amount you can borrow depends entirely on whatever asset you’re pledging to the bank until the debt is cleared—we're talking anywhere from roughly 50% to 90% of its value.

Which means, look, you actually need to have the money upfront to even qualify for this kind of thing.

As for how a Lombard loan would somehow help you land a mortgage... honestly, I haven't the slightest clue 🤷 .

Kimberly Nguyen said:👋

I’m a proud owner of—well, just a "tiny" residential loan and a small margin account... though I guess margin accounts are basically the law these days! 👍
mm, actually, the cash amount is a bit higher because the banker wouldn't really listen to my suggestions 🙂 😁

Wait, what exactly counts as a margin loan? 😕

Forgive me—I'm just a newbie trying to navigate this massive world of American banking! 😍

Is the CD still actually earning interest? So, if I pay off my current pawn loan and then take out a much larger one—since my savings account has grown in the meantime—would that work?

And I assume the interest rate would be even lower than what I'd get on a mortgage, assuming it's just a little higher than the rate I'm pulling from my CD
?

Michelle Foster13 said:Once everything is paid off, you still have the car and the cash—plus, those interest rates you were dealing with weren't even that bad...👍

True, but I guess the real question is how you actually get that initial pile of cash into a bank account just to use it as leverage for a low-interest loan... You see what I mean? It’s a bit of a catch-22...

I don't think I've ever even heard of a pawnshop loan being used like that—they probably don't exactly advertise it on TV or anything! 😁

feralheron90 said:Borrow from a friend or some relatives... maybe make up an excuse? Or just take out a $1,000 pawn loan for 12 months—your monthly payment would only be about $80 or $90,

then you could put that cash into a high-yield savings account and hopefully save a little extra for future investments.

Family is great for getting started since you don't have to pay them interest.

If I tried asking my family for money, they’d probably just laugh me out of the room—I wouldn't get more than a couple of bucks out of them, so... I guess that famous pawn shop option will have to wait until my grandma hits the jackpot at the casino!🙂

Secured Loans:
- backed by your savings accounts
- mutual funds
- life insurance policies
- stock portfolios
- home savings plans
....

Look, here's how it works: say you’ve got a solid chunk of cash sitting in a high-yield savings account at Chase. Instead of breaking that deposit and losing out on interest, the bank gives you a line of credit based on that balance—usually up to 90% of whatever you've got tucked away. You'll pay a slightly higher interest rate than what the account is earning, sure, but you get to pick the term that actually fits your life. It's flexible, it's smart, and it keeps your principal intact.

If you ask me, these are hands down the best loans out there. They're simple, they're straightforward, and they're easily the cheapest way to borrow money without getting absolutely ripped off. 👍

Michelle Foster13 said:Wait, what exactly is a Lombard loan? 😕

Please forgive my ignorance; I’m just a newcomer trying to navigate this massive world of American banking. 😍

Let me try to break this down for you in the simplest way possible:

You essentially hand over $333, (though, let's be honest, that might be the biggest hurdle if you don't have it on hand).

The bank then takes that money and places it in a fixed-term account for the duration of your loan—you actually get to decide the repayment term, though I believe it can't exceed 60 months.

In exchange, the bank pays out a separate amount of $333, which you are free to use however you see fit.

Since this is a Lombard—or collateralized—loan (meaning you’ve provided cash as 100% collateral), the bank doesn't ask for any additional guarantees. As long as you are an American citizen, you should be good to go.

Now, I may not have the very latest market data at my fingertips, so I could be slightly off, but interest rates on these types of loans tend to be the lowest among all cash-based credit options.

Once the loan is fully repaid, the bank returns your original $333 plus whatever interest was earned on the deposit.

People often use this specific type of credit to buy stocks or fund mutual funds, using their existing shares or fund holdings as the underlying collateral.

Personally, I think this kind of credit is quite handy for something like buying a car, provided you already have the cash sitting there...

Once the loan period ends, you’re left with both the car and the liquidity, and the interest you paid along the way was relatively minimal...👍

Kimberly Nguyen beat me to the punch and already gave you the latest scoop! 🙏

🙈@ Kimberly Nguyen, thanks so much for sharing those fresh updates! My own experience with this is getting a little dusty, to say the least...

feralheron90 said:You hand the bank $333, (and honestly, that might be the biggest hurdle if you don't have them on hand).

Small correction here, 😁 you aren't handing anything over to the bank... you're setting up a CD in your own name.

feralheron90 said:I'm thinking they can't go longer than 60 months.

Actually, they can go longer... Chase offers terms up to 15 years, though it really depends on which specific collateral you're using 😉 ...

feralheron90 said:The bank pays out the other $333 and you're free to use those however you want.

The maximum I could find via the Federal Reserve was 95%.

feralheron90 said:Interest rates on these types of loans are usually the lowest among all cash loans—I don't have the absolute latest data right in front of me, so I might be slightly off.

It's the CD rate plus 1.5% (according to the Federal Reserve, though that feels a bit low to me 😲)

feralheron90 said:Once the loan term ends, you still have both the car and the money, and the interest you paid was minimal...👍

🙂

Michelle Foster13 said:Sure, but how on earth am I supposed to get that initial pile of cash to deposit in the bank just so I can leverage it for a low-interest loan? You see where I'm coming from...

I’ve honestly never even heard of a pawn-style loan like that; they probably don't even advertise them out in the wild.😁

Borrow it from a friend or some family members—make up a little excuse if you have to. Take that $1,000 and put it into a collateralized loan for 12 months; your monthly payment would only be about $80 to $90.

Then, take the money you actually earned and put it into a high-yield savings account or a CD. That way, you’re essentially building up a little nest egg for future acquisitions.

Family is usually the best way to kick things off, since you aren't stuck paying them interest.

Look, you start by pinching pennies... then you scrape together a little more... until you finally have a decent little pile of cash sitting there. From there, you start putting it to work—utilizing things like high-yield savings accounts, moving into mutual funds, maybe even picking up some stocks and whatnot... just taking it one step at a time.
Every single journey starts with a struggle. 🙂

But honestly, doing business with family is a recipe for disaster, especially when there's serious money on the line.

feralheron90 said:Let me try to break this down for you in the simplest terms possible:

You provide the bank with $333, ..................

This specific type of loan is frequently utilized to purchase stocks or fund mutual fund positions, where you use your existing shares or fund holdings as collateral.

Personally, I find this kind of credit quite convenient for something like buying a car if you already have the cash sitting there...

Once the loan term ends, you still have the car and your cash intact, and the interest rates you paid were relatively low...👍

Oh, please, could someone explain this to me? Because I honestly don't see the logic here.🙈

You mentioned that this type of credit works for you when buying a car if you already have the cash on hand. So, let me get this straight: you have the money needed to buy the car—you use that as collateral for a Lombard loan, which carries, say, a 5% interest rate—and then the bank approves the credit at an interest rate 1.5% higher, making it 6.5%.

And what exactly did you gain from that? You already had the money for the car, but instead, you took out a loan just to end up paying interest (which would be 6.5% minus 5%, leaving you with a 1.5% cost). 😕

In my opinion, taking out a Lombard loan only makes sense if you are using something like shares in a diversified mutual fund or an index fund as collateral, where you expect the returns to exceed the interest rate you're paying on the loan (in this case, greater than 6.5%).

Please correct me if I'm wrong, though; I've never actually taken out a Lombard loan myself, so I lack the hands-on experience.

Look, I’m telling you, trying to go the installment loan route just doesn't make any sense to me. My plan would be to take out a Lombard loan through Chase, but I have a feeling they aren't going to bite on that, right?

I'd also consider taking out a mortgage-backed loan at JP Morgan Chase, but there's a catch—I'm currently unemployed. Does that actually matter? In my mind, it seems a bit silly for them to insist on employment verification when they're holding collateral that's worth 10% more than the loan itself, but I suppose I should ask.

Look, personally, I think a Lombard loan for fixed-term deposits is pretty much a waste of time, but hey, to each their own...

One thing that actually makes sense, though, is taking out a Lombard loan against mutual fund shares or using stocks as collateral.

I actually use a Lombard setup for my mortgage savings—my funds (which are mine, not the bank's) are tied up until the savings account matures, so I just draw down about 90% of what I've saved so far. I pay the interest and eventually the principal, or I just cover the interest and let the principal be settled by the total amount once the mortgage savings plan hits its end date.

The big thing here is that it’s my own damn money, not some loan from the bank, so there isn't any credit check bullshit involved. It’s essentially a cash loan, totally unrestricted, and you can get it sorted without any massive headache in just a few days; the fee is 1% and the interest rate is 6.49%.

Look, I’m fully aware of how those percentages work. My point was simply questioning whether the math actually adds up to a worthwhile move in the end. That 10% margin would swing your calculations significantly, not to mention how much the timing of your deposits matters.

So, you're telling me JPMorgan Chase is offering a loan against the asset? Well, isn't that just fantastic! 🙂

hiddensailor60 said:I’d honestly love to pull a Lombard loan through Chase, but it feels like they wouldn't even touch that request. Am I wrong about that?

Oh, they absolutely do... you can get up to 50% of the value at a 7.49% rate.

hiddensailor60 said:I’d also jump on a home equity loan at JP Morgan Chase, but since I'm currently unemployed, does that actually matter? I mean, logically, why would they care? They're holding a collateral stake that's 10% higher than the loan itself, so what's the issue? Just asking.

With a Lombard loan, your creditworthiness isn't really a factor—it's all about the collateral, so it shouldn't be an issue... though I remember reading somewhere that certain banks *do* look at income requirements... I can't quite recall which specific bank it was, though.🤔