An Overview to Share Secured Loans

If you’re new to the whole borrowing world, you may be wondering – what is a share secured loan and how does it work?   

A share secured loan by definition is a unique type of loan that allows you to use your own money as collateral. Typically, this money is held in the form of a savings account or certificate of deposit (CD). This means that if you were to default on the loan, the lender can and will take the money from your account to cover the outstanding balance.  

Even though this money is held in an account as collateral, you can still have access to the funds, but cannot use them until the loan is repaid.   

If you decide to take out this loan, you will need to provide the lender with up-to-date income verification documentation such as wage slips and bank statements. This will show the lender that these funds have been deposited into an account and that you do have the ability to pay off the loan.   

The secured shared loan interest rate is typically lower than other types of loans because the money is already in the bank and does not have to be transferred. These loans are also a good option for people with bad credit or no credit history because they provide a lender with security.   

While this may seem like a risky proposition, share secured personal loans can actually be a great way to build or improve your credit score. Making timely payments can help show lenders that you’re a responsible borrower and broaden your options for future loans.  

What Is a Share Secured Loan?

A share secured loan is a loan that uses funds from a savings account as collateral. The maximum amount you’re allowed to borrow varies from bank to bank. Some lenders may allow you to borrow the full amount in your savings account or just a percentage. The money is repaid in monthly installments that are generally spread over two to 15 years.  

These loans are much more favorable than unsecured loans. If you are able to provide the lender with the needed documentation and have a good balance in your account, you will get really good interest rates and flexible terms. And if that’s not the case, you can always also try to negotiate.  

In case you’re considering taking out a share secured loan, there are a few things you should keep in mind. First, make sure you understand how much money you’ll need to borrow and whether you’ll be able to make the monthly payments. It’s also important to compare interest rates and terms from different lenders before choosing the one you want to go for. And lastly, remember that your savings account or CD will be tied up as collateral for the loan, so make sure you have enough money set aside in case of an emergency.  

How Does a Share Secured Loan Work?

Now that we covered the meaning of share secured loans, let’s take a better look at how do share secured loans work.  

A share secured loan is just one of the secured loan types. Like with any other of this kind, you will need to provide a lender with all the necessary documentation stating that you do have a certain asset to put down. With this one, you will need to verify that you do have an opened savings account with the money in it.  

The lender is the one that gets to decide the exact amount that you can borrow, so the final offer between lenders can vary a lot. Be sure to apply with various lenders and once you get the offers just choose the one that best suits you.  

How to Qualify for Share Secured Loans?

To qualify for these loans, you must have an account with a credit union or bank. The account can be a savings account, certificate of deposit (CD), or even a money market account. Other documents you’ll need in order to fill out a loan application are financial information such as your income and debts. The lender will also pull your credit report to see if you have a good repayment history.   

In general, if you are able to qualify for share secured loans, they are a much better option than unsecured loans. Many people hesitate to put down any collateral and would much rather go for an unsecured option, but also overlook the much more favorable terms and interest rates share secured loans can offer them.  

Share secured loan interest rates are not just lower, but you can also choose between fixed and variable rates depending on your preference. 

Advantages and Disadvantages of Share Secured Loans

If you are on the hunt for a perfect loan type without any downsides, know that that one does not exist. A share secured loan has many pros and cons that you should think about without rushing into any decisions.  

Here, we will cover some of the most important benefits of share-secured loans as well as some of their drawbacks.  

In case you need any additional help in figuring out if this is the right loan type for you, we recommend you reach out to your financial advisor.  

Advantages  

• Lower interest rates. There is the collateral you provided so the risks for a lender are much lower and therefore they will offer you much better terms.  
• It can help you build or improve your credit score. You will still be able to qualify even if you do not have a perfect credit score or no borrowing history. Use this to your advantage and make timely payments to ensure you will end up with much higher scores.  
• It can give you access to extra cash when you need it. This opportunity will give you some additional cash and you will not need to take anything from your accounts if you do not want to.  
• Good repayment schedule. Many lenders will give you full say in how long you want your repayment period to be.   
• You will be able to borrow a larger amount. Because there is something lenders can take to recoup their losses, they will be open to offering much higher loan amounts than if you were to apply for an unsecured loan.   

Disadvantages  

• You may be offered a higher interest rate if your credit score is really bad.   
• If you fail to pay back the money you took out, you will use your collateral.  
• There may be an additional charger if you pay off the outstanding balance early.  
• You will be paying a lot in interest if you choose to spread your loan too much.  

Is a Share Secured Loan a Good Idea?

After all, this has been said, you may be wondering if a share secured loan is a good idea.   

Well, the answer to this question depends on your personal situation and your financial needs and goals.  

If you do have a savings account that has quite a bit of money in it, but you don’t want to draw from it, getting this loan can be a good option to get some extra cash.   

Additionally, because the loan is backed by your savings, it can be easier to qualify for than most other types of loans. If you have bad credit, for example, a share secured loan may be a good option for you since the lender knows they have collateral should you default on the loan. If you also have a good salary and debt-to-income ratio, the whole application process should be fairly quick.   

However, before you decide whether or not to take out this loan, make sure you understand all of the terms and conditions associated with the loan. Don’t forget to shop around and compare offers from different lenders to get the best deal possible.  

Alternatives to Share Secured Loan

Share secured loans are not the only option for borrowers looking to use their savings as collateral. There are a few alternatives to these loans that may be more suitable depending on your individual circumstances.  

One alternative that is fairly popular, is a home equity line of credit (HELOC). A HELOC uses your home’s equity as collateral and typically has even lower interest rates than a share secured loan. However, if you just took out the mortgage and don’t have much equity in your home, you are not eligible for this option. Also, there is more risk involved with a HELOC because if you default on the loan, you could lose your home.  

Another option is a collateralized loan from a peer-to-peer lending platform. These platforms match borrowers with investors who are willing to lend money at rates that are often lower than those offered by traditional lenders. The downside of these loans is that they are not always easy to qualify for and the terms can be less favorable than those of a share-secured loan.  

In case you have good credit history and a good score, you may be able to qualify for a personal loan from a bank or credit union. Personal loans usually have fixed interest rates and monthly payments, making them easier to budget for than variable-rate loans like HELOCs or peer-to-peer loans. However, personal loan rates can be high if you have less-than-perfect credit, so this may not be the best option if your credit is less than perfect.  

Ultimately, the best way to decide which type of loan is right for you is to compare your options and see what works best for your unique situation.  

Final Thoughts

When it comes to share secured loans there is one thing to keep in mind. These loans are typically used by people with bad credit scores or no previous credit history. So, if you’re one of them don’t hesitate to learn more about this loan type and see if they can help you. While we cannot tell you what to do, we provided you with a good in-depth guide to these loans and how to get them.  

If you’re considering applying, be sure to shop around and compare interest rates from different lenders. You can also try negotiating with your lender for a lower interest rate.  

Lastly, make sure you understand all the terms and conditions of the loan before signing anything. This way, you’ll know exactly what you’re getting into and won’t be surprised by any hidden fees or charges.