Not so long ago, pawnshop loans were only available to a narrow circle of very rich people. Today, however, some innovative companies are offering this type of loan to ordinary people with modest insurance. One such company is Pledger. Lombard loan is a great solution for those who can't get a regular loan, but you should use this tool carefully.
Potential borrowers are unfortunately very familiar with the cascading effect. In the last year alone, real estate lending has fallen by 40%, according to the Bank of France. Due to rising interest rates, borrowing costs are rising rapidly and banks are being forced to lend less and less - lending options are simply limited.
If you can't take out a loan, you need to increase your down payment, which means resorting to savings. But you can keep your savings and use it as leverage to get a loan! That's exactly how a lombard loan works. For a very long time, this type of lending has been the domain of the rich, but new players are emerging. Fintech companies like Pledger are relying on technology to make pawn loans available to the general public.
Such a loan allows you to keep your savings in an account and keep your life insurance intact, as the insurance only serves as collateral. If you already have €100,000, you can borrow €50,000, at a lower rate and with easier access conditions.
What can become collateral
Lombard credit owes its name to Italian bankers, but these days it is no longer measured in florins, but in financial assets. You can get a favorable rate by pledging your savings as collateral. Consumer loan rates are now around 6%, and Pledger offers just under 5%. The maximum loan amount is 200000 euros and the maximum term is 15 years. In addition, such a loan will be unlimited. You will be able to use the money however you want.
There is another feature - you will not have to fill out a medical questionnaire. This allows you to use the loan for sick and elderly people for whom conventional loans are not available. Moreover, you don't have to pay for insurance: the savings themselves serve as a guarantee for the lender.
Risk
To expand its customer base, Pledger is taking advantage of changes in the law. It is now allowed to offer a loan against assets held by another bank. Such organizations are focused not on the super-rich, but on ordinary people with small savings.
It is true that you should be careful. When you take out a pawn loan, your assets are no longer liquid. You place the capital as collateral and can no longer use it for other purposes. In addition, if the collateral loses value, the lending bank may require additional collateral and sometimes a partial repayment.
If you use a financial asset as collateral, even though the risk is small, the benefit rarely exceeds the cost. Thus, the bank makes money not only on the capital invested, but also on the money lent. As a result, it is the bank that benefits, not the customer.
For special cases
According to some, a pawnshop loan is a very specific tool that should be used only in certain conditions. Moreover, you should only take it for a short period of time and on the condition that it can be easily controlled. One such case, for example, is when you want to have time to give a gift to your children before you turn 70 and you need money urgently. Otherwise, this type of lending remains risky for a wide range of customers.
Bottom line
Lombard credit has both its advantages and disadvantages. On the one hand, microfinance organizations like Pledger make loans available to people who can't afford conventional loans. At the same time, this type of lending has many risks. Often, it is not the client who benefits from a lombard credit, but the bank. However, if you use this tool wisely and in a timely manner, almost any ordinary person can benefit.
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