Do you need a loan in order to take advantage of the opportunity to invest or to get your account up and running after a dry spell? If you are looking for quickly available financing, a short or medium-term Bollards loan can be the solution. The principle of this type of loan: it is granted when collateral is pledged. These can be movable things, bank deposits or securities.
What exactly is a Bollards loan?
In the financial sector, a Bollards loan is defined as a short-term or medium-term loan, in which a pledge provides security. The type of the pawn ultimately depends on the variant of the Bollards loan to be issued. These can be, for example, movable property (precise definition in the legal provisions of the Federal Republic of Germany), bank deposits or securities such as shares. Ultimately, pawnbrokers also grant Bollards loans against deposit of accepted items.
How does a Bollards loan work?
If you want to secure your Bollards loan with securities, you can lend a maximum of 75 percent of the current value. The maximum mortgage lending value for movable goods is 66 percent. You generally receive a pledge loan when corresponding collateral is deposited, which becomes the property of the lender. Nevertheless, you retain ownership of the deposited value. As a borrower, you can choose from three options:
- At the agreed time, you will repay the loan amount plus interest and fees, and you will receive your deposit.
- You let the deadline pass and thus lose the pledge to the lender.
- Provided that the possibility is given in the loan agreement, you can have the term of your Bollards loan extended, whereby the loan costs increase by another.
The basis for this credit model is the Civil Code, the obligations in the loan contract are precisely defined in BGB § 488. Before taking out a Bollards loan, you should also note that when you conclude a contract, you grant the lender the right to sell the pledge, provided you do not release it on time.
Types of Bollards loan
Below we present the five variants of the pledge. Please note that the first three subspecies are primarily consumer-oriented, while the latter are used in financial-business relationships.
Securities Bollards credit
Since securities are tradable securities such as shares, this loan is only granted when certain assets are deposited. So this loan is about a security loan, where one aspect deserves special attention. The funds lent usually serve to finance the acquisition of additional exchange-traded securities in the case of a securities Bollards loan.
The process of lending is noteworthy. The lending institution opens a separate checking account for you as a customer to process the loan. The bank then determines the maximum possible credit line, the amount of which is calculated using the lending limit shown above. Due to exchange rate fluctuations, both the lending limit and the credit volume can experience direct changes. Post-collateral rights on the part of the credit institution are usually triggered when the loan limit decreases without the credit line being adjusted immediately or already being used.
Goods Bollards credit
Trade goods exhibited using traditional papers can be financed with goods Bollards loans. As a borrower, you must note that you do not deposit the goods themselves, but rather the associated endorsed traditional paper as security. Seafaring bills (bill of lading), storage bills or other loading bills are considered to be endorsed traditional papers. Such papers certify the right of ownership of a product which is transferred to the bank providing the loan upon assignment. Merchants generally use the goods lending credit to pre-finance additional goods and repay the loan with the proceeds from the sale.
Precious metal Bollards credit
With this type of Bollards loan , precious metals such as gold or silver are pledged as security for the loan. Lending against the deposit of precious metals was once a frequently used form of credit and was a core business of the banks. At the present time, the financial institutions are practically no longer giving precious metal Bollards loans, and they have left this business to the pawnshops. Nevertheless, it can be important for you to know the conditions.
If, for example, you want to make coins from gold or silver in the pawnshop, the effective value of the respective precious metal is used to determine the mortgage lending value. The pawnshop deducts about 20 percent from this amount, so your maximum loan amount is always 80 percent of the actual value. Any pawn shop does not take into account a significantly higher collector’s value.
Bill of exchange credit
This Bollards loan has replaced the bill of exchange discount that is no longer on offer and is only granted to credit institutions in accordance with the Bundesbank’s terms and conditions. The banks use the bill of exchange credit for refinancing. This loan option is not an option for private individuals, but it does make sense to internalize the meaning of the term change. This means a document that requests the drawee to pay a noted sum of money on a specific date.
For example, sellers issue bills of exchange to their buyers when entering into commercial transactions, which oblige them to pay for the purchased goods at specified times. In the case of bill of exchange loans, bills of exchange of this type serve as collateral for surrendered funds.
The “fake” Bollards loan
This type of Bollards loan is also only used in the banking sector; the fake variant is a current account credit secured by movable property. The only difference: A real Bollards loan, as already explained, requires the establishment of a dedicated credit account. A fake Bollards loan, on the other hand, is processed via an existing checking account. However, experts point out that the account distinction is not of legal importance and plays no significant role in banking practice.
In general, the conditions can only be said to be comparatively cheap, since every loan is secured with real assets, securities or precious metals. Nevertheless, every lending institution has individual rules with regard to the lending limit, interest rate or minimum deposit volume. Before you apply for a Bollards loan, you should thoroughly compare the terms of the provider on the Internet and in any case choose a reputable lender.
In principle, Bollards loans are linked to a maximum term of two years, whereby you can either call up the loan amount at once or use it in tranches. The relevant credit line is always decisive. The best conditions are offered to you with the Bollards loan if you offer your bank balance as security.
Requirements for a Bollards loan
If you apply for a conventional small loan, the bank’s first step is the mandatory Credit Bureau query, which is used to determine your creditworthiness (creditworthiness). When it comes to Bollards loans, the institutions are not obliged to obtain Credit Bureau information, since sufficient collateral significantly reduces the risk of default. However, not all financial institutions do this, and some banks, despite adequate credit protection, ask for entries in the protection association for general credit protection. If your Credit Bureau values are not quite optimal, it is advisable to ask the preferred bank in advance whether the bank will also ask the protection association for information about a Bollards loan.
In addition, as a legally competent private person with a main place of residence in Germany, you are entitled to apply for a Bollards loan and you can ask both banks and brokerage providers. As the conditions, as already shown, differ considerably from one another, a previous comparison is essential.
What advantages a Bollards loan offers you
The outstanding advantage of this loan option is of course the prompt availability of the required funds. Banks generally save the time otherwise required for the credit check. However, it always takes a few hours or days to thoroughly assess the deposited pledged items before acceptance is decided.
Another advantage that should not be underestimated results from the fact that deposited values do not have to be sold and still generate liquidity. These become your property again as soon as you have repaid the Bollards loan together with fees and interest. The only exception: they do not meet their obligations and thus force the lender to dispose of deposited objects.
Are there risks with a Bollards loan?
General risks exist for you if you cannot repay a Bollards loan in good time due to suddenly changing living conditions. This could be unforeseen unemployment or serious illness, but divorce can also severely limit your financial strength. In these cases, you lose the pledged values and can also be obliged to pay costs if the lender does not achieve a sufficient sale price for the pledge. It is therefore important to include previously mentioned options in the planning in advance of each borrowing.
There is a particular risk for you as an equity investor when taking out a securities lending loan if it is not granted for free use. As security, you deposit already acquired papers for the purchase of new shares. However, if the prices of the pledged securities change dramatically negatively, the bank can shorten your line of credit or require you to provide additional security or margin. Should the newly purchased shares also go down, they will lose on both sides.
Therefore, always bear in mind that past share gains do not have to mean attractive returns in the future, and do not push your credit volume to the limit. If, due to stock market turbulence, you are forced to exceed your credit line, your bank will charge interest even if you tolerate it, which is significantly higher than the interest rate agreed for the securities loan. In order not to get into this situation, you should always have a reserve available, if this does not exist, the bank will force you to sell the securities at an unfavorable price.
For which groups of people do Bollards loans make sense?
As a private person, the precious metal Bollards loan granted in the pawnshop will help you with small and short-term shortages. If, as a private investor, the house bank granted you a securities Bollards loan without a usage restriction, you would have a low-interest alternative to the expensive overdraft facility. Depending on the amount, you could use it to make upcoming consumer expenditures, finance a vehicle or take a family vacation. Timely repayment or, alternatively, the extension approved by the bank is important.
As a trader, you could use a goods Bollards loan to quickly expand your offer. However, you must make arrangements with the lending institution to make the pledged goods available. This works without problems if the newly purchased goods are sold faster than the deposit items.
As a shareholder focused on returns, you can expand your portfolio with promising securities in a timely manner with a securities loan. You should have extensive specialist knowledge and be aware of the risk outlined above.
Ultimately, investors must take into account that the interest costs for securities Bollards loans taken out for the investment can no longer be fully claimed for tax purposes. The flat-rate withholding tax that has been in effect since 2009 has limited advertising costs, which were once individually definable, to a minimum of a flat rate. This also applies if you pay tax on your actual income tax rate as part of the favorable assessment.