What is Legal Lending Limit?

Did you know that there is more to your bank than just a simple money-keeping institution? Your bank is also a loans company. And since you are a regular clientele, you are among the ones who are qualified to enjoy this special feature of your bank. There should be many types of loans your bank offer.

Among that makes the list are home, auto, and personal loans among so many others. One thing that you need to remember when loaning is the legal lending limit of your bank.

It does have a limit that is regulated by the government finance authority as well as the federal laws, so you have to take this into consideration when you sought to avail of the service or benefit.

As a potential borrower to your bank, you should know what the legal lending limit of your bank is. This is the maximum amount that your bank can allow you to borrow. To identify how much this amount is, you should check or double check if your bank is a national or international bank. The legal lending limit of the banks according to type is categorized below:

National banks
There is a huge probability that you are with a national bank because you need to be a resident or at least a frequent visitor of a foreign bank to become one of their members.

If this is what your bank really is, then you should know that it has a legal lending limit of 15 percent of its reserves on unsecured loans and capital. If the bank is fully secured, this limit rises to 25 percent of the capital.

A bank holding company, on the other hand, can lend its bank affiliated to a max limit of 10 percent of its capital added to the surplus of the affiliate. If there are a number of affiliates a holding company owns, the legal lending limit can be raised to 20 percent of its capital.

Basically, this is the foregoing legal lending limit being allowed even in savings and loans of all bank institutions as regulated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

To maximize the legal lending limit of your bank then, you should check with your representative about this information. But if you are still in the deciding process of what and how much to loan, you can find reports about the capital and other funds of your bank in their website or the regulating finance authorities.

You can also directly ask your banking officer or investment manager for this especially if you are among the affluent members of a bank.

International banks
International banks or dollar accounts are just like national banks in terms of system. They are also savings and loans institutions that work to provide you with everything you need given that you are among their preferred members.

As to the legal lending limit to dollar amount, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 set the same with the savings and loan banks in the national level. Still, the regulations with international banks are not as strict as with national banks as the aggregate lending limit for this usually varies with the bank itself.

You see, international banks have their own rules and regulations as mandated by their own government so you have to be very meticulous when you are choosing a dollar account or international bank to invest your money to. Make sure that this bank will ensure your best interest all the time and that it offers the same features it provides its own local members.

Also, international banks may have very high rates compared to your currency. This is basically the reason why only a few and mostly the affluent ones are the only people who can set up an account in these types of banks.

Besides, there are also a few requirements that an international bank may require an account holder that may be a little too much or difficult to provide. This and more are the reasons why international or dollar accounts are not as popular by most bank depositors.

Aside from legal lending limit, a bank may also offer other banking services. Whatever services they offer though, make sure that you will be able to get the best benefits from being part of it.

Ensure that they have the website or quarterly reporting to their members to ensure that you will get the freshest news about your bank’s standing in terms of funding and growth, which will basically dictate the legal lending limit of the bank. But for best result, ensure that you can get to pay your loan should it be approved.

If not, you will be required to pay even bigger interest rates than the regular rates you should be paying.

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