What does it mean? How does it work?
Why should you be interested in current account limits?
Sometimes, you may need more flexibility when it comes to financing. An account limit is a form of revolving credit that can help you. It carries a variable rate based on the value of your movable or immovable assets.
What does the current account limit mean?
The account limit works like a revolving credit line based on the value of your assets:
- Moveable assets: such as shares, bonds, or mutual funds. The amount you can borrow is determined by the value of these assets, less a safety margin. In this case, we refer to it as a Lombard loan.
- Real estate: such as a margin on the pledged value of a property through the delivery of a mortgage note.
How the current account limit works
The account limit's interest rate is generally variable and may fluctuate according to market interest rates. You can use the funds made available up to the amount of the limit granted by your financial institution or repay all or part of it at any time if you comply with the relevant terms and conditions.
Suppose the value of your Lombard or property assets falls. Your credit limit may also be reduced in that case, meaning you must repay part of the loan or provide additional assets as collateral. It is, therefore, important to understand the terms and conditions and the risks associated with the account limit before using it as a source of finance.