Lombard loans for dummies

George Washington said:...so you use it as collateral for a loan and get maybe 5% interest—then the bank approves a credit line at 1.5% higher, making it 6.5%.

But what did you actually gain? You had the cash for the car, but instead, you just took out a loan and ended up paying more interest (which works out to 6.5% minus 5%, so 1.5%). 😕

You can't just add and subtract percentages like that (unless you're paying back the principal and interest all at once at the end).
With a "standard" loan repayment, you can roughly estimate the interest as 0.5 x interest rate x loan amount x number of years (it’s not linear, but it works for a quick math check).
To be precise: throw the numbers into Excel—for example, a 3-year CD for $10,000 at 5% gives you $3859. A 3-year loan (36 equal monthly payments) at 6.5% interest means you'll end up paying $3668, and you'd need a 10.2% rate just to break even with the CD.
Just a heads up, this doesn't even account for loan processing fees, verification costs, or the fact that you don't get 100% of the collateral value.

George Phillips said:yeah, yeah ... maybe 50% of the value, I think 7.49%

with a Lombard loan, credit scores don't really matter, I guess... I think I read somewhere that some places ask for it... but idk which bank it was actually 🤔

When I took out a Lombard loan through JPMorgan Chase, I had to provide my job info and salary stuff... even though my banker told me they wouldn't check my credit since the loan was only 70% of the value of the assets I pledged. Guess I didn't check what would've happened if I were unemployed. Got the cash in like 2 days after applying—they just took a 0.5% processing fee from the loan, $16 had to get one copy of the contract notarized, then the money hit my Chase checking account

hiddensailor60 said:Could you please walk me through this? I’m struggling to see the logic here.🙈

You’re saying a loan like this is good for buying a car if you already have the cash sitting there. So, you have the money needed for the car—you use that as collateral for a Lombard loan, which earns you, say, 5% interest. Then the bank approves a loan at a rate 1.5% higher, making it 6.5% total.

What’s the actual benefit? You already had the money for the car, but instead, you took out a loan and ended up paying extra interest (which would be 6.5% minus the 5% you earned, leaving a 1.5% cost).😕

In my view, using a Lombard loan only makes sense if you’re pledging something like shares in a diversified mutual fund or an index fund where you expect the returns to outpace the interest you're paying on the loan (in this case, higher than 6.5%).

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

You aren't wrong; from a purely mathematical and financial standpoint, you're spot on. Everything else is just a matter of personal preference.

What I meant was: suppose you have the cash for the car, but I’m also adding the idea of having some extra monthly surplus that could be saved. Personally, I find it counterproductive to simply hand over all that cash to buy the car outright:

By using that cash as collateral, you secure a bank loan with terms that you can negotiate to suit your own tastes—specifically regarding the duration of the loan and the size of the monthly payments.

You get the funds from the bank to buy the car, and here is why I believe this approach holds water:
1. Once the loan is paid off, you get your original cash back. This means you effectively owned the car while simultaneously building up savings... without this loan, you would still be saving, but at a much slower pace.

2. You purchased the vehicle at a significantly lower interest rate than what a standard auto loan would offer.

3. At any given moment (within a day or two), you can access your liquidity if an emergency pops up.

4. An effective interest rate of 1.5–2% on a Lombard loan is absolutely worth the peace of mind for me, because it is the simplest way to access credit: there’s no grueling proof of creditworthiness, no complex collateral requirements, you don't need to prove employment status, you don't have to visit a JPMorgan Chase branch five or ten times, and you aren't stuck waiting weeks for approval...
...so, is that small interest spread worth it?

I admit my way of thinking is a bit unconventional, but the core philosophy of taking a loan even when you have the cash is centered on forced savings. In this manner, you will end up saving significantly more than if you were trying to save voluntarily every month without sacrificing your current lifestyle.

The difference between saving voluntarily versus using a Lombard setup is massive; I know this from my own experience, and it justifies all the interest and incidental costs associated with the loan itself.

I realize what I'm describing might be a little hard to wrap one's head around initially, but with a bit of hindsight, the brilliance of the move becomes clear. After several years, you are left with both the car and the cash. And you can always tap back into your original funds (the ones used as collateral), though obviously, you'll receive the difference between the total payments made and the principal amount.

If I need to elaborate further, I can; a few friends of mine did the exact same thing, and after a certain number of months, they realized they had actually come out ahead in the end...👍

Look, what you’re saying only makes sense if you aren't capable of disciplining yourself to save. This way, the bank essentially forces you into "forced savings"—though I question whether we can even call it saving; in my view, you’re just losing money.

I said that if you have the cash for a car—and let me add that I also have some monthly surplus that could be set aside—personally, I find it unprofitable to shell out all that cash upfront for a vehicle:

Based on that cash, you secure a loan from the bank under terms you negotiate to suit your own taste, specifically regarding the loan term and the monthly payment amount.

You receive funds from the bank and use them to buy the car; here are my specific reasons why I believe this logic holds up:
1. Once the loan is paid off, your initial cash is returned to you. This means you effectively owned the car and were saving money simultaneously... without the loan, you would still be saving, just a smaller amount.

If I had the cash for a car—let's say $25,000—I would put it into a stock mutual fund, take out a margin loan against 70% of the value of those shares, and buy the car over a three-year period. I would only pay the interest; I'd leave the principal until the very end.
Let's assume that the fund yields a 20-30% annual return; after three years, the holdings would be worth $40,000. I pay off the $17,500 margin loan (70% of the $25,000), and at the end of three years, I have the car and $22,500 in cash. (Granted, I was paying interest for three years, but that's a negligible amount in this context).

Doesn't my math look better? 😁 Of course, I emphasized the word "assume"—funds can lose money, too—but I am quite confident that over the next three or four years, one doesn't need to worry about "serious" US equity funds.

And for the strategy you were describing, you'd also need to be in a position to afford the monthly payments $667 for the car, which is no small feat.

But then again, everyone does what works for them and what they perceive to be most profitable, right? 🙂

domar said:I don't have any pawn shops on my mind today, but if I ever decide to go down that road, I’ll definitely be following your lead! Right now, my investment strategy is a bit of a mix; I’ve got some capital set aside from a loan I took out, alongside my own personal savings which are currently spread across a single mutual fund and a handful of individual stocks.

Believe it or not, I am experiencing the exact same thing on my end! 🙂 If I eventually decide to go the securities-based lending route, I’ll essentially be pledging shares in a fund that was largely built on borrowed capital to begin with! At that point, if things go south, we might find ourselves drowning in debt just like Greece—but hey, that's the game. You can't chase those kinds of profits without taking on some serious risk. 😁
Of course, we always have to operate under the assumption that things won't go exactly according to plan. It’s vital that we stay prepared for the lean years and make sure we aren't overextending ourselves. We simply cannot afford to miscalculate our resources or overestimate what we can handle when the chips are down.

To be perfectly honest, we’ve actually been on the exact same page this entire time. It just seems my posts have been aimed at a crowd that hasn't quite made the leap into the sophisticated world of serious investing yet!

👍

It is incredibly easy for those sitting on a mountain of cash to just throw money around and let it grow. For them, investing is almost a hobby—a way to make their wealth multiply effortlessly. But for those of us who aren't playing with a massive safety net, the game is entirely different. We don't have the luxury of being reckless. We have to be resourceful, finding every possible angle to make things work, and we have to fight for every inch of progress. When you're operating without that cushion, you have to keep your eyes wide open at all times, constantly scanning for potential pitfalls and staying hyper-vigilant against any risks that could wipe you out. It’s a completely different level of intensity. 😁

P.S. I can't help but sit here and marvel at this. It’s truly incredible how much wisdom and insight a young person can possess—I mean, we're talking about a 21-year-old college student here. Honestly, it's almost hard to believe! 😁😁😁 😂

If you actually understand how mutual funds and the stock market operate, then your math is spot on.

In my previous posts, I wasn't trying to distance myself from the seasoned traders here,🙈; rather, I was speaking in broad strokes. My aim was to reach the much larger group of folks on this forum—the ones reading this PDF who don't have a clue how the market works. It’s either because they’re terrified of anything involving stocks, bonds, or life insurance (my friends are a perfect example of that), or they just haven't found a reason to care yet.

My commentary is really intended for those who are still total novices in these areas.

I don't personally own a pawn shop or run a lending business right now, but if I ever decide to go down that road, I'll certainly follow your lead. For the time being, I'm working with an investment loan alongside some of my own savings, which I've spread out between a single fund and a handful of individual stocks.

At the end of the day, we were actually on the same page all along... it's just that my writing was aimed at the crowd that hasn't quite graduated to the world of investing yet!

If I take out a loan equal to 70% of my total fund value, am I being judged by the share price on the day the loan is issued or by the actual number of shares? If it’s based on the number of shares, does that mean the way I pay back the loan changes depending on how much those shares fluctuate before the term ends?

Price is what actually matters, not how many shares you hold. Like, if you've got $33 in a JPMorgan Chase fund today: your max credit is $23 and all the interest and fees are based strictly on that amount. Any price swings later on just change how much collateral covers the loan, but honestly, that doesn't really affect you.

But there's a catch with how those shares are frozen...

For instance, if you have $33 (just off the top of my head) 490 shares => they get blocked => which means you can't touch them until that loan is paid off, even though they’re still subject to market gains or losses

Thanks for the heads-up 🙂

hiddensailor60 said:Believe it or not, I am experiencing the exact same thing on my end! 🙂 If I eventually decide to go the securities-based lending route, I’ll essentially be pledging shares in a fund that was largely built on borrowed capital to begin with! At that point, if things go south, we might find ourselves drowning in debt just like Greece—but hey, that's the game. You can't chase those kinds of profits without taking on some serious risk. 😁
Of course, we always have to operate under the assumption that things won't go exactly according to plan. It’s vital that we stay prepared for the lean years and make sure we aren't overextending ourselves. We simply cannot afford to miscalculate our resources or overestimate what we can handle when the chips are down.

To be perfectly honest, we’ve actually been on the exact same page this entire time. It just seems my posts have been aimed at a crowd that hasn't quite made the leap into the sophisticated world of serious investing yet!

👍

It is incredibly easy for those sitting on a mountain of cash to just throw money around and let it grow. For them, investing is almost a hobby—a way to make their wealth multiply effortlessly. But for those of us who aren't playing with a massive safety net, the game is entirely different. We don't have the luxury of being reckless. We have to be resourceful, finding every possible angle to make things work, and we have to fight for every inch of progress. When you're operating without that cushion, you have to keep your eyes wide open at all times, constantly scanning for potential pitfalls and staying hyper-vigilant against any risks that could wipe you out. It’s a completely different level of intensity. 😁

P.S. I can't help but sit here and marvel at this. It’s truly incredible how much wisdom and insight a young person can possess—I mean, we're talking about a 21-year-old college student here. Honestly, it's almost hard to believe! 😁😁😁 😂

And here is the crux of the issue regarding Lombard loans—this specific line from the post:
It’s easy for people sitting on a mountain of cash to invest and make their money work for them. But us...

Basically, a Lombard loan only makes sense under one very specific scenario. Say you inherit $100,000 after your grandfather passes away. You use that as collateral for an $80,000 loan over, say, five years. Your take-home pay is roughly $4.75 net (assuming your uncle pulled some strings to get you a steady gig at the local municipal office). Now, you take that $80,000 and sink it into a new business venture. If the business tanks, you don't even lose the full $100,000—because the collateral is always meant to cover the principal plus interest. But if the business actually takes off? After five years, you’ve got your $100,000 back, plus interest, plus the profits from the new venture. Then, you just do it all again with a larger Lombard loan—maybe a $200,000 collateral base for a $180,000 loan—balancing the private business alongside the municipal job....

So, I guess a Lombard loan is only viable if two conditions are met:
1. You have some kind of windfall of at least $100,000 (could be land equity where you skip the mortgage and let the bank deal with the sale later, though you've got the cash on hand, haha...), or maybe a dowry or something similar.
2. You have a family member who can secure you a stable job... 🙄 With the average American salary? Zero chance. It’s just not going to happen.

Now, how many people actually meet those criteria?😂?

I certainly don't. How about you?

Where I grew up, there's a saying, "The devil always shits in a big pile." Or, more simply, if you already have $100,000, making another $100,000 is easy. But if you're starting with $10 or $100, you can forget about ever seeing $100,000.

Anyway, that's my two cents on Lombard loans.☕

That’s a massive understatement—you’re trivializing the whole issue. To put it more bluntly? You’re talking nonsense.

Personally, I don't have the energy to sit here and explain things to people like you. If you’re still confused, do yourself a favor and go back and read this entire thread again, much more carefully this time. If you honestly believe everything is perfectly clear and that this entire situation only serves "the wealthy elite"—then by all means, feel free to just walk away. 😉

I want to introduce you to a specific type of Lombard loan; I noticed nobody here has mentioned this option yet, so it might pique your interest.

Let’s run a scenario. Suppose you don't have $60,000 sitting around in cash, so instead, you take out a home equity loan for that amount. You set aside $10,000 to cover old debts and miscellaneous stuff, then dump the remaining $50,000 into an investment fund. Based on that $50,000 stake, the bank grants you a Lombard loan of $25,000, which also gets funneled straight back into the fund. Essentially, the capital isn't "available" for spending. Some funds have been pulling 50% annual returns or even exceeding 100% over the last few years, but let's be realistic—let's assume you aren't that lucky and they return a modest 30%. Of course, that 30% is working on a total principal of $75,000.

With that $10,000 cushion you kept on the side, you cover your monthly mortgage payments, and for the bank providing the Lombard loan, you simply pay the interest. That $10,000 is enough to service both the mortgage installments and the interest for the next five years. You can run the math on the rest yourselves.

Here is the setup:
$75,000 in the fund
30% annual return
Compound interest calculation

After five years, the fund sits at $214,000. You pay the bank back its $25,000 credit, leaving you with roughly $190,000—all while having paid off your mortgage installments.

And look, you aren't forced to withdraw the money from the fund after those five years.
In that case, you could potentially qualify for a new Lombard loan worth 50% of the fund's value, bringing your total managed capital to about $300,000.
After another five years, you’d have upwards of a million dollars in the fund. You pay back the initial $25,000, then the subsequent $100,000, and ten years in, you're looking at a million-dollar balance plus whatever you've cleared on the mortgage.

And all of this started with nothing more than a mortgage on a house or an apartment.

I should clarify: this isn't for everyone. Most people either can't or won't wrap their heads around this strategy because they're too afraid, or for whatever other reason.

But I'm young and reckless enough to see that ten years isn't a lifetime. Even if the fund ends up yielding a measly $300,000 at the end of a decade—which is my pessimistic estimate—I won't make that kind of money in ten years unless I start smuggling cocaine from Colombia.

I'm eager to hear what you all think.
If you want to test the theory, try running these numbers with a 15% annual return. Even then, you'll be wealthy by our standards... and you'll be completely financially independent within ten years.

And then suddenly, those funds just crater by 15%...

Then you get that lovely little margin call notification hitting your inbox...

🤷

Oh, sure, they’ll eventually show up with a formal notice stating you're being evicted on short notice too.

And don't even get me started on the rumors—apparently, the local homeless shelters are already bursting at the seams, and the lines at the community soup kitchens just keep getting longer by the day...

Honestly, when you start hearing about a 30% annual fund return, it starts sounding less like financial reality and more like some whimsical fairy tale written by Lewis Carroll.

And then you end up turning to a predatory payday lender just hoping they’ll act like a decent human being—which, let’s be honest, is a total long shot.

wiredotter16 said:I want to introduce you to a specific type of Lombard loan; I noticed nobody here has mentioned this option yet, so it might pique your interest.

Let’s run a scenario. Suppose you don't have $60,000 sitting around in cash, so instead, you take out a home equity loan for that amount. You set aside $10,000 to cover old debts and miscellaneous stuff, then dump the remaining $50,000 into an investment fund. Based on that $50,000 stake, the bank grants you a Lombard loan of $25,000, which also gets funneled straight back into the fund. Essentially, the capital isn't "available" for spending. Some funds have been pulling 50% annual returns or even exceeding 100% over the last few years, but let's be realistic—let's assume you aren't that lucky and they return a modest 30%. Of course, that 30% is working on a total principal of $75,000.

With that $10,000 cushion you kept on the side, you cover your monthly mortgage payments, and for the bank providing the Lombard loan, you simply pay the interest. That $10,000 is enough to service both the mortgage installments and the interest for the next five years. You can run the math on the rest yourselves.

Here is the setup:
$75,000 in the fund
30% annual return
Compound interest calculation

After five years, the fund sits at $214,000. You pay the bank back its $25,000 credit, leaving you with roughly $190,000—all while having paid off your mortgage installments.

And look, you aren't forced to withdraw the money from the fund after those five years.
In that case, you could potentially qualify for a new Lombard loan worth 50% of the fund's value, bringing your total managed capital to about $300,000.
After another five years, you’d have upwards of a million dollars in the fund. You pay back the initial $25,000, then the subsequent $100,000, and ten years in, you're looking at a million-dollar balance plus whatever you've cleared on the mortgage.

And all of this started with nothing more than a mortgage on a house or an apartment.

I should clarify: this isn't for everyone. Most people either can't or won't wrap their heads around this strategy because they're too afraid, or for whatever other reason.

But I'm young and reckless enough to see that ten years isn't a lifetime. Even if the fund ends up yielding a measly $300,000 at the end of a decade—which is my pessimistic estimate—I won't make that kind of money in ten years unless I start smuggling cocaine from Colombia.

I'm eager to hear what you all think.
If you want to test the theory, try running these numbers with a 15% annual return. Even then, you'll be wealthy by our standards... and you'll be completely financially independent within ten years.

Look, I think most people *can* understand this story... if they lived in a world without actual consequences or risks... you know, a total Teletubbies land where nothing ever goes wrong.

wiredotter16 said:I want to introduce you to a specific type of Lombard loan; I noticed nobody here has mentioned this option yet, so it might pique your interest.

Let’s run a scenario. Suppose you don't have $60,000 sitting around in cash, so instead, you take out a home equity loan for that amount. You set aside $10,000 to cover old debts and miscellaneous stuff, then dump the remaining $50,000 into an investment fund. Based on that $50,000 stake, the bank grants you a Lombard loan of $25,000, which also gets funneled straight back into the fund. Essentially, the capital isn't "available" for spending. Some funds have been pulling 50% annual returns or even exceeding 100% over the last few years, but let's be realistic—let's assume you aren't that lucky and they return a modest 30%. Of course, that 30% is working on a total principal of $75,000.

With that $10,000 cushion you kept on the side, you cover your monthly mortgage payments, and for the bank providing the Lombard loan, you simply pay the interest. That $10,000 is enough to service both the mortgage installments and the interest for the next five years. You can run the math on the rest yourselves.

Here is the setup:
$75,000 in the fund
30% annual return
Compound interest calculation

After five years, the fund sits at $214,000. You pay the bank back its $25,000 credit, leaving you with roughly $190,000—all while having paid off your mortgage installments.

And look, you aren't forced to withdraw the money from the fund after those five years.
In that case, you could potentially qualify for a new Lombard loan worth 50% of the fund's value, bringing your total managed capital to about $300,000.
After another five years, you’d have upwards of a million dollars in the fund. You pay back the initial $25,000, then the subsequent $100,000, and ten years in, you're looking at a million-dollar balance plus whatever you've cleared on the mortgage.

And all of this started with nothing more than a mortgage on a house or an apartment.

I should clarify: this isn't for everyone. Most people either can't or won't wrap their heads around this strategy because they're too afraid, or for whatever other reason.

But I'm young and reckless enough to see that ten years isn't a lifetime. Even if the fund ends up yielding a measly $300,000 at the end of a decade—which is my pessimistic estimate—I won't make that kind of money in ten years unless I start smuggling cocaine from Colombia.

I'm eager to hear what you all think.
If you want to test the theory, try running these numbers with a 15% annual return. Even then, you'll be wealthy by our standards... and you'll be completely financially independent within ten years.

🙄

And please, for the love of everything, stop using examples like this. We have newcomers here who are just starting to wrap their minds around basic saving, credit, and investing... we shouldn't be feeding them this stuff.

Kimberly Nguyen, my example was based on a real, existing offer from a bank, though I clearly failed to make that point clear to you..and since you want to talk about risk, tell me: which major US bank is going to hand you 50% of its capital just for depositing your own money, assuming the probability of a total collapse matches your pessimistic worldview?

And honestly, I wrote this specifically because there are so many beginners lurking on this forum..why wouldn't I share information that could actually be life-changing?

Look, if a fund returns 15% annually and you start with $50,000
the bank hands you an extra $25,000
bringing your total to $75,000
With compound interest over five years, you double your money to $150,000. If you decide to stop saving at that point, you pay back the initial $25,000 and walk away with $125,000.

I should also mention that during my last market correction, I saw a 23% dip in my portfolio in just a few days before things started trending back into the green..The ten worst market crashes in history didn't even see a drop greater than 50%. Even if a crash that massive actually happened and I lost everything, it would mean the end of civilization as we know it, at which point cash wouldn't be worth a damn anyway.

And let's not forget, your money is accessible whenever you need it. You aren't locked in by some rigid contract or a fixed-term CD.

Kimberly Nguyen said: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. 👍

Sure, it might be the best, simplest, and cheapest option out there—but you have to ask: who is it actually serving?

Banks don't actually do anything besides lend your own money back to you. Why on earth would anyone bother with a secured loan if they already have the cash sitting in a savings account? 🤷
If I have to put up $1,000 just to get a $1,000 line of credit, what’s the point? Why bother dragging the bank into this if I already have the cash sitting there?

Anyone who pulled off a move like that back in '98 is probably sitting on a mountain of cash right now.
I’m actually running a margin loan myself to cover the funds I used for stocks, but honestly? I am nowhere near as much of an optimist as you are. Calling a 30% return a possibility is a massive stretch if you ask me—15% is way more grounded in reality. On top of that, interest rates on loans are climbing everywhere, and I wouldn't be shocked at all if they hit 10%. Once you factor in all those processing fees and extra nonsense, there's barely any profit left over.

And let’s not forget—back in the day, we saw stock market crashes exceeding 80% that took freaking 20 years to recover from. One of the biggest reasons for that disaster was exactly what we're seeing now: people pumping up stock prices with money borrowed from mortgage-backed loans. It's a recipe for disaster.