What is a Lombard loan?

In addition to conventional bank loans, bonds, factoring, overdrafts, supplier or customer loans, there is also a loan called Lombard credit.
In this article we want to make it as easy as possible for you to understand exactly what a Lombard loan is and what its advantages or disadvantages are.

What is a Lombard loan?

This is a loan that is financed by movable assets (sometimes also called real collateral) or assets that can be easily sold on the market (simple or easy to sell).
Immovable assets are, for example, land and real estate, movable assets are, for example, the inventory of a company, shares or the like.

You are probably now asking yourself what role you play in such a Lombard loan.
As the debtor, you would be the owner of these assets (such as securities), your bank would be the creditor here and thus the owner of these.
The difference is easy to explain, the owner retains the right to the thing and the owner actually has it in his hands.

A small example on the subject:

When shopping you will find a T-shirt that you like very much and buy it.
That makes you the owner and the owner of it.
But if you borrow this T-shirt from your girlfriend or boyfriend, you are still the owner, but the current owner is your girlfriend or boyfriend, because they are actually holding the garment in their hands.

Furthermore, a small percentage of the value of a Lombard loan generally serves as collateral.
This percentage is used to include fluctuations in the value and therefore the value is retained.

Depending on how realisable your asset is, the higher the value you can lend against it naturally rises.
Recyclable means in how quickly or easily something can be sold.
Due to the high fluctuations in the market, a share is used less often as an asset.

For private individuals, a Lombard loan is usually easier and less bureaucratic to obtain than with many other forms of credit.
The principle of a pawnbroker’s shop may be used here to simplify matters.
They take, say a watch, to the pawn shop and get a certain amount of money for it.
Easy and uncomplicated and afterwards you can get this clock back by paying back at least this buzzer.

The disadvantage to be absolutely mentioned is, if you do not manage to repay the agreed sum within the agreed period, the value object or the asset is auctioned off.

Lombard credit – Types

Depending on the type of pledge, your Lombard loan has an additional designation:

Securities lombard, for example, is the name given to a lombard loan in which securities are used as the cornerstone.
As the name suggests, the bill of exchange card contains the bill of exchange* as an asset.
The third and last is the goods lombard, which refers to inventories.

*Bills of exchange: comparable to a cheque, except that the agreed amount is to be handed over at a certain place and on a certain date.

In order to make this topic easier to understand, you will find a video at the end of the article, in which the Lombard loan is again simplified and explained. If you have any further questions, simply contact our competent service team, who will be happy to answer them for you.

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