What is a credit secured by financial instruments?

A credit secured by financial instruments is a loan granted by a bank in exchange for collateral consisting of your financial assets, such as:

• shares
• bonds
• fund units
• in some cases, a life insurance policy

You do not sell these investments. They remain yours and are used as security for the loan.

The amount you can borrow depends on:

• the value of your investments
• how easily they can be sold (their liquidity)

Depending on the bank, you may use the credit to:

• purchase additional investments
• finance a personal project
• cover everyday expenses
• finance a real estate project

In return, you must repay:

• the borrowed amount (principal)
• the interest

Before signing: what happens and what the bank must check

Before signing the credit agreement, the bank must provide clear pre-contractual information.

This includes information about:

• the duration of the credit
• the total cost of the credit
• the interest rate
• the repayment conditions
• the conditions for early repayment
• whether a reflection period applies
• the consequences of non-payment
• how and when the contract may be terminated

The bank must also assess whether you are able to repay the credit.

This assessment is based on information such as:

• your income
• your expenses
• your assets
• your outstanding debts

Where applicable, the bank may also consult credit databases before deciding whether to grant the loan.

Standardised information

Depending on your country of residence and the purpose of the credit, you may receive:

• a Standard European Consumer Credit Information (SECCI) form
• a European Standardised Information Sheet (ESIS)

These documents:

• summarise the key features of the loan
• use a standard format
• help you compare different credit offers

Reflection period

Whether you benefit from a reflection period depends on:

• your country of residence
• the type of credit

Where a reflection period applies, it will be stated in the credit agreement and, where applicable, in the SECCI or ESIS document.

During this period, the bank cannot change the conditions of its offer.

Interest rates explained

When you borrow money, you pay debit interest.

Your loan may have either:

Fixed interest rate

• remains unchanged during the fixed-rate period
• repayments remain stable during that period
• once the fixed-rate period ends, a new rate may be agreed

Variable interest rate

• may increase or decrease during the loan
• repayments may change over time
• an increase in rates increases the cost of the loan

Main risks to consider

This type of credit provides flexibility but also exposes you to several important risks.

Decline in the value of your investments

If your investments lose value, the bank may require you to:

• provide additional collateral; or
• repay part or all of the loan.

This situation is known as a margin call.

Interest rate risk

If your loan has a variable interest rate, an increase in rates will increase the total cost of the loan.

Currency risk

If your loan and your investments or income are in different currencies, exchange rate movements may increase the cost of repayment.

Risk of losing your investments

If you fail to repay the loan or fail to meet a margin call, the bank may sell your pledged investments, even if markets have fallen.

Leverage risk

Borrowing to invest can increase potential gains, but it can also significantly increase potential losses if markets decline.