A Lombard loan (crédit lombard), a loan taken out against liquid assets, is an effective way to finance projects.
These types of loans first originated in Italy’s Lombardy region in the Middle Ages reflecting the type of borrowing merchants were engaged with.
Leverage the private banking system
Today in France, Lombard loans can be secured using an Assurance Vie and policy owners can borrow up to 100% of the amount invested.
By using a private bank, Daniel says that these loans are interest only – with a fixed rate of 1.5% interest depending on when the loan is started – and renewable every three years.
Applicants need not worry about adding loan insurance (assurance décès invalidité), which is usually standard practice when borrowing funds within the French banking system, as is not necessary for this type of loan.
French Lombard loans more accessible
“In France one private bank offers a Lombard loan solution that can be accessed with a €100,000 investment,” says Daniel.
“This provides clients with great opportunities, because, for example, in Luxembourg a Lombard loan starts at €1 million.
“The French version offers a much more accessible-to-all solution.”
There are areas of the borrowing process that must be dealt with carefully, which is why it is important to seek specialist advice before proceeding.
Daniel explains, “The loan has to be justified as it is forbidden to borrow to invest in France.
“However it can be utilised for many reasons, such as a house renovation.
“The conditions for accessing the loan are generally straightforward, however, and once you have an Assurance Vie you can borrow at any time.”
Risk level of investments is a factor
One hurdle that applicants may need to overcome is that the higher the deemed risk of an asset invested in the Assurance Vie, the less you can borrow.
“However, in essence, there is space for flexibility,” says Daniel.
“Each category of assets allows for a certain percentage to be borrowed.
“For example, if you are invested in the ‘fonds en euros’, which is popular with investors, you can borrow 100% of what is invested.”
Daniel suggests those with medium term or future projects should consider this Assurance Vie / Lombard loan combination.
“It is a straightforward process and the Assurance Vie product will grow during the loan period,” he says.
“Also there is absolutely no obligation to use the facility once the Assurance Vie has been set up, it is just there if one needs it. ”