What Is a Share-Secured Loan?

A share-secured loan, also known as a savings-secured loan, is a type of personal loan that's secured by the money in your bank or credit union account. If your loan application is approved, the financial institution will freeze that amount in your account as collateral. Thi൩s type of loan can b🧜e easier to obtain than many others, especially if you're just starting to build a credit history.

How a Share-Secured Loan Works

Financial institutions that offer share-secured loans allow you to use money in your accounts with them— such as a savings or money market account—as 澳洲幸运5官方开奖结果体彩网:collateral for a personal loan. You're most likely to find these types of loans at credit unions, where savings accounts are often referred to as "share accounts" and checking accounts as "澳洲幸运5官方开奖结果体彩网:share draft accounts."

The amount you put up as collateral will be frozen by the lending institution but may still earn interest while you're paying back the loan. Depending on the terms of your loan, you may get access to your collateral only after you've paid off the entire balance, or it may be released a bit at a time as you're making payments. 

Since you're putting up your own cash, lenders may be more willing to extend credit or offer a better interest rate because of the lower risk. Depending on the lender, you might be able to borrow as much as 100% of your collateral or some lesser amount. If you fail to make payments and default on the loan, the lender has the right to keep your cash. 

Pros and Cons of Share-Secured Loans

Like other types of borrowing, share-secured loa🧔ns have both advantages and disadvantages.

Advantages of Share-Secured Loans

• Opportunity to build credit: Banks and credit unions typically report your payment information to the credit bureaus, which could help you 澳洲幸运5官方开奖结果体彩网:build a credit history. 
• Easier to qualify: Share-secured loans allow borrowers with a limited or negative credit history to qualify for a loan. 
• Competitive interest rates: Since these loans are less risky for lenders compared with 澳洲幸运5官方开奖结果体彩网:unsecured loans, you may get a lower interest rate. 
• Loan flexibility: Borrowers can typically use share-secured loans for almost any purpose. 

Disadvantages of Share-Secured Loans

• Money frozen in account: You won't be able to use the money that's frozen until you pay down or pay off your loan. 
• Potential loss of collateral: If you fail to pay back the loan, you could lose the money in your account. 
• Possible fees: In addition to interest charges, your lender may charge fees to originate the loan. Or, you may have to pay late fees if you aren't careful. 

Is a Share-Secured Loan Right for You?

A share-secured loan may be a good choice if you have poor or limited credit and want to build your credit history. Since it's easier to qualify for than many other types of loans, you may not have to go through a lengthy application and approval process, meaning you could get the money relatively quickly. 

However, if you need a large loan amount or have good credit, you may want to consider othe🐽r a💫lternatives. 

Alternatives to Share-Secured Loans

Share-secured loans aren't for everyone. Possible alternatives include:

• Secured credit cards: Somewhat similar to share-secured loans, 澳洲幸运5官方开奖结果体彩网:secured credit cards require that you make a refundable cash deposit into a special account, which typically acts as your credit limit on the card. However, the amount you have to put down may be lower than with a share-secured loan. Secured credit cards could be a better option if you don't need to borrow a large sum of money, or you don't need money right away. Having a secured credit card and paying your bill on time can also make you eligible for a regular credit card after a certain period.
• Credit-builder loan: 澳洲幸运5官方开奖结果体彩网:Credit-builder loans are also geared toward borrowers without much of a credit history. Instead of you putting up collateral, the amount you borrow is held for you in a savings or CD account. You pay back the loan in installments, and the money will be released to you once it's fully paid off.
• 澳洲幸运5官方开奖结果体彩网:Secured personal loan: This is a loan from a traditional lender, where you'll need to put up collateral. However, rather than cash, you can use other types of assets, such as a vehicle, and often still have access to them while you’re paying off the loan.

The Bottom Line

A share-secured loan can be an effective way to build credit. These loans are relatively easy to qualify for and their interest rates tend to be lower than those on many other types of loans. Since you're putting money up as collateral, you're at risk of losing it if you can't pay back the loan. If you decide this type of loan is right for you, be sure to shop around to compare rates and terms.