Lombard loans for dummies

So, I’m looking at taking out a Lombard loan against my foreign currency savings over at JPMorgan Chase. They’re offering me about 4.78% interest on the deposit (at least, that's what I'm seeing), plus they want 3.45% for the loan itself. That puts the annual cost at a cool 8.23%
. I mean, sure, I get my 4.78% back once the term is up, but inflation is going to chew through that, and let's be real, that 3.45% interest on the loan is just going to eat my lunch too 🙂.
I’m currently sitting here staring at the wall, trying to figure out if this "Wolf of Wall Street" type move is actually genius or just plain stupid—I'll let you guys know when I stop meditating on it. By the way, we had this massive debate earlier, but honestly? I tried it again and I'm still stuck in the exact same spot.
The thing is, these Lombard loans technically shouldn't mess with your creditworthiness, but the bank's app is being incredibly stubborn; it won't even allow for any other way to calculate the math, no matter how much I argue with them about it..

Henry Parker7 said:So, I’m looking at taking out a Lombard loan against my foreign currency savings over at JPMorgan Chase. They’re offering me about 4.78% interest on the deposit (at least, that's what I'm seeing), plus they want 3.45% for the loan itself. That puts the annual cost at a cool 8.23%
. I mean, sure, I get my 4.78% back once the term is up, but inflation is going to chew through that, and let's be real, that 3.45% interest on the loan is just going to eat my lunch too 🙂.
I’m currently sitting here staring at the wall, trying to figure out if this "Wolf of Wall Street" type move is actually genius or just plain stupid—I'll let you guys know when I stop meditating on it. By the way, we had this massive debate earlier, but honestly? I tried it again and I'm still stuck in the exact same spot.
The thing is, these Lombard loans technically shouldn't mess with your creditworthiness, but the bank's app is being incredibly stubborn; it won't even allow for any other way to calculate the math, no matter how much I argue with them about it..

And get this: even the credit bureaus don't even receive data regarding those lines of credit.

Pawn loans don't actually impact your credit score—since they’re fully collateralized by your own deposits, banks don't even bother checking your creditworthiness, nor does the repayment schedule factor into your debt-to-income ratio at all.😉

Maybe my English is a little rusty, so let me try explaining this another way: if someone walks into a JPMorgan Chase branch—let's say they try three different locations just to be sure—and they already have some Lombard loans sitting there with the same bank, then when they apply for a standard cash loan, the software the personal bankers use to calculate
their creditworthiness is going to factor in those existing Lombard loans and slash the total amount of cash they're actually eligible to borrow. (I'm serious, they literally turned the monitor right in my face so I could see the math happening).

Anyway, I'm done talking about this.

But if that same individual walks into a Chase branch, closes out their term loan, and settles the pawned assets, those installments won't count against their creditworthiness—and this woman saw the screen with her own eyes 😍
. It’s an issue with how the banking app handles data, but realistically, it shouldn't be taken at face value.

Kimberly Nguyen said:And get this: even the credit bureaus don't even receive data regarding those lines of credit.

A quick side note on credit bureaus...
I recently heard about someone whose Equifax report showed a $60,000 Lombard loan when it was actually just a standard mortgage.:🙄
When banks report to the big agencies, they mix everything up and send over garbage data all the time.
Or if you’re just a co-signer for someone else, it might mistakenly list you as the primary guarantor... so yeah, don't trust these credit bureaus blindly. They aren't exactly bulletproof.

Nobody ever bothers to mention that the system isn't some flawless machine... look, mistakes happen, but they absolutely need to be reported and fixed immediately...

And don't give me that line about them being just a guarantor when, in reality, they’re fully on the hook as a co-signer once the axe falls and everything goes south.😁

Besides, what good is looking at a bunch of random people in a crowd and trying to judge who has what kind of credit score? It's impossible.

I’m honestly pretty confused by all this talk about Lombard loans; I've been reading through the whole thread and it seems like I'm not the only one feeling lost.

So, let's say I have something like $13,000 sitting in a Google savings account earning 3% interest. That term is ending soon, and now I'm looking to pick up a new car for about $20,000, which leaves me about $7,000 short.

How would the math actually work out if I went with a Lombard loan versus just taking out a standard auto loan for 7 years?
(I think someone mentioned that the actual interest rate ends up being closer to 9%, even if they advertise it at 7% or something.

Could someone please walk me through this? I'd love to know how to properly compare the two.
Thanks!

A securities-backed loan—or what some call a Lombard loan—is essentially borrowing against assets you already own because you aren't quite ready to liquidate them yet.

Look at it this way: say you have $10,000 sitting in a two-year CD earning 4% interest. => Based on that certificate of deposit, an American bank might let you borrow $9,000 over a two-year term at a rate of 6.49%.
During those two years, you pay the bank back according to whatever terms you choose (whether you just chip away at the interest and drop the principal at the end, or pay it down steadily). The catch? Your CD is locked up. You can't touch that money while the loan is active.
Once those two years are up and you've cleared the debt, the bank releases the hold on your CD and hands you your full principal plus all that accumulated interest.

The real beauty of this setup is that they don't care about your credit score. It doesn't matter if you're working a high-flying corporate job or if you're currently between gigs, and frankly, they don't give a damn what you spend the cash on. The whole process is fast, streamlined, and cheap.

Compare that to a standard personal loan. With those, the interest rates are always higher, they’ll demand a co-signer or a massive deposit, and they’ll scrutinize your credit history like you’re under a microscope.

But applying that logic to your specific situation: if you were to put $13,000 into a CD, the bank might lend you $11,700... which leaves you short by $8,300. But once you settle that $11,700 debt, you still walk away with your full $13,000 intact. It’s simple math, really.

There might be a way for me to cover part of that $7,000 gap without paying interest; I guess I could just take out a personal loan for maybe $3,000 or $4,000 over a 5 to 7-year term.
It seems like you really know your stuff when it comes to this—what would you suggest I do in my situation?

Watch your step, because that "free" loan might just end up being the most expensive mistake you ever make in your life.😉

Look, what I would personally do isn't necessarily the "right" way to handle things...

but if it were me? I’d definitely go for a Lombard loan—either backed by a security deposit or tied to some investment funds🤷—and then cover the rest in cash. But here’s the kicker: I’d keep the cash portion on a super short term, while stretching out the Lombard loan longer to deal with the interest rates.

Kimberly Nguyen said:Watch your step, because that "free" loan might just end up being the most expensive mistake you ever make in your life.😉

Look, what I would personally do isn't necessarily the "right" way to handle things...

but if it were me? I’d definitely go for a Lombard loan—either backed by a security deposit or tied to some investment funds🤷—and then cover the rest in cash. But here’s the kicker: I’d keep the cash portion on a super short term, while stretching out the Lombard loan longer to deal with the interest rates.

It’s not like there's a huge problem; I guess some friends or family might chip in, but it's not like my cousin is going to bail me out with a loan or anything. 😉

Thanks for the advice!

Even though it seemed totally impossible back when the loan was first pulled, here we are.
So, looking at fund shares that were worth 100 when the loan went out—they approved a 70 credit against them, but now those shares have tanked to 60. What does the borrower actually owe? I mean, obviously the borrowed money has to be paid back, but I'm also thinking about how things work at a pawn shop (isn't a collateral loan basically just that?). If you go to a pawn shop, the owner just hands over the item to the lender, right? And in this case, the lender is the one taking the hit because they totally misjudged the risk and approved a loan where the collateral was only, like, 43% higher than what they gave out.

Maybe—if they were clawing back the principal too—it wasn't even a "margin call"
I’m not worried about the banks, though. I'm sure they made the calls 🙂

Sorry, I'm totally lost on what you mean there. It’s such a simple question though: with a securities-backed loan, does the borrower just owe the collateral itself? Or, you know, like a regular bank loan, are they actually on the hook to pay back the principal plus all the interest?

Everything has to be paid back. That’s why when the market tanks like this, banks just send out notices telling clients they need to cough up more cash—either by buying more fund shares or padding their loan principal.

@lambodara
Come on, please tell me you didn't actually go through with that plan to use the pawn shop for another loan. lol

To whom it may concern,

I find myself in need of approximately $15,000... though I am currently on maternity leave, which complicates matters quite a bit... my husband’s salary isn't officially reported at a high enough level to satisfy most lenders right now... and even if we were to attempt the standard application process, the bureaucracy alone would likely drag on for three, four, five, or perhaps even six months before any approval is granted... which, given the sheer amount of taxes and various fees one has to surrender in this country, feels like far too much to lose...
I have heard some whispers regarding collateralized loans... I wonder if those are still a viable option in the current market?... specifically, is there any way to secure such an arrangement using a life insurance policy as a guarantee, even though I haven't established one yet... or perhaps through an investment fund, though my holdings are presently limited to my 401(k)...

thank you all in advance!!!

dustymarlin1 said:To whom it may concern,

I find myself in need of approximately $15,000... though I am currently on maternity leave, which complicates matters quite a bit... my husband’s salary isn't officially reported at a high enough level to satisfy most lenders right now... and even if we were to attempt the standard application process, the bureaucracy alone would likely drag on for three, four, five, or perhaps even six months before any approval is granted... which, given the sheer amount of taxes and various fees one has to surrender in this country, feels like far too much to lose...
I have heard some whispers regarding collateralized loans... I wonder if those are still a viable option in the current market?... specifically, is there any way to secure such an arrangement using a life insurance policy as a guarantee, even though I haven't established one yet... or perhaps through an investment fund, though my holdings are presently limited to my 401(k)...

thank you all in advance!!!

A collateral loan is basically where you have an asset and you get about 90% of its value, usually at an interest rate about 2% higher than what that asset earns you...
If you want a loan against a life insurance policy you don't have yet, you won't be able to get the amount you haven't paid into the policy...
And for an investment fund loan—other than your 401(k)—it's the same deal as the first two options...
Honestly, though? Just have the husband report a higher salary. That’s definitely the safest bet!

swiftorca57 said:A collateral loan is basically where you have an asset and you get about 90% of its value, usually at an interest rate about 2% higher than what that asset earns you...
If you want a loan against a life insurance policy you don't have yet, you won't be able to get the amount you haven't paid into the policy...
And for an investment fund loan—other than your 401(k)—it's the same deal as the first two options...
Honestly, though? Just have the husband report a higher salary. That’s definitely the safest bet!

Partially true, I guess.

swiftorca57 said:A collateral loan is basically where you have an asset and you get about 90% of its value, usually at an interest rate about 2% higher than what that asset earns you...
If you want a loan against a life insurance policy you don't have yet, you won't be able to get the amount you haven't paid into the policy...
And for an investment fund loan—other than your 401(k)—it's the same deal as the first two options...
Honestly, though? Just have the husband report a higher salary. That’s definitely the safest bet!

That's just wrong.

swiftorca57 said:A collateral loan is basically where you have an asset and you get about 90% of its value, usually at an interest rate about 2% higher than what that asset earns you...
If you want a loan against a life insurance policy you don't have yet, you won't be able to get the amount you haven't paid into the policy...
And for an investment fund loan—other than your 401(k)—it's the same deal as the first two options...
Honestly, though? Just have the husband report a higher salary. That’s definitely the safest bet!

I honestly don't even know how to respond to that...

swiftorca57 said:A collateral loan is basically where you have an asset and you get about 90% of its value, usually at an interest rate about 2% higher than what that asset earns you...
If you want a loan against a life insurance policy you don't have yet, you won't be able to get the amount you haven't paid into the policy...
And for an investment fund loan—other than your 401(k)—it's the same deal as the first two options...
Honestly, though? Just have the husband report a higher salary. That’s definitely the safest bet!

👍