Have you ever wondered how to access funds while keeping your savings intact? Share-secured loans offer a solution by allowing individuals to use their savings or investments as collateral to secure a loan.
This article will cover everything you need to know including what is a share secured loan, how it works, its benefits and drawbacks, and many things to keep in mind before obtaining one.
Whether you’re looking to borrow money or seeking a way to leverage your assets, understanding share secured loans is essential. So, let’s delve into the details together without taking much of your time.
What is a Share Secured Loan?
A share secured loan is a straightforward borrowing arrangement where you use your savings or investments, like a certificate of deposit (CD) or savings account, as collateral to secure the loan.
This means that if you’re unable to repay the loan, the lender can take ownership of the collateral to cover the outstanding balance. The amount you can borrow is usually limited to a percentage of the value of the collateral you’ve pledged, ensuring that the lender has a level of security.
READ ALSO: How to Get a Private Loan with Bad Credit
How Do Share Secured Loans Work?
Share secured loans work by allowing individuals to use their savings or investments as a guarantee when borrowing money. Here’s how it works: When someone applies for a share secured loan, they offer their savings or investments to the lender as collateral. In return, the lender provides the borrower with a loan, using the pledged assets as security.
If the borrower can’t repay the loan as agreed, the lender can take possession of the collateral to cover the unpaid amount. This arrangement reduces the risk for the lender, which often results in lower interest rates for the borrower.
Benefits of Share Secured Loans
Share-secured loans offer several benefits for borrowers. Here are some benefits attached to getting a share-secured loan;
Lower Interest Rates
Because share secured loans are backed by collateral, such as savings or investments, lenders are more willing to offer lower interest rates compared to unsecured loans. This can result in significant savings over the life of the loan.
Easier Approval
Since the borrower’s own assets secure the loan, lenders are more likely to approve applications for share-secured loans, even for individuals with less-than-perfect credit histories. This makes share-secured loans an accessible borrowing option for many people.
Builds Credit
Making timely payments on a share-secured loan can help borrowers improve their credit scores over time. By demonstrating responsible borrowing behaviour, individuals can enhance their creditworthiness, making it easier to qualify for future loans and credit cards.
Flexible Repayment Terms
Share-secured loans typically offer flexible repayment terms, allowing borrowers to choose a repayment schedule that fits their budget and financial goals. This flexibility can help borrowers manage their loan payments more effectively.
Retains Savings
Unlike traditional secured loans that require borrowers to use valuable assets like their home or car as collateral, share secured loans allow individuals to retain ownership of their savings or investments while still accessing the funds they need. This provides peace of mind knowing that their financial reserves remain intact.
ALSO CHECK OUT: How to Get a Private Investor Loan
How to Get a Share-secured Loan
Getting a share-secured loan is a straightforward process. Here’s how it typically works;
Contact Your Financial Institution
Start by reaching out to your bank, credit union, or other financial institution to inquire about share-secured loan options. You can usually apply for a share-secured loan online, over the phone, or in person at a branch.
Provide Collateral Information
You’ll need to specify the savings or investment account you wish to use as collateral for the loan. This could be a savings account, certificate of deposit (CD), or another type of investment account held with the financial institution.
Complete the Loan Application
Fill out the loan application provided by the financial institution. You’ll need to provide personal information such as your name, address, social security number, employment details, and income information.
Agree to Terms and Conditions
Review the terms and conditions of the loan carefully before agreeing to proceed. Pay attention to important details such as the loan amount, interest rate, repayment terms, and any fees or penalties associated with the loan.
Await Approval
Once you’ve submitted your loan application, the financial institution will review your application and assess your creditworthiness. If approved, you’ll receive a loan offer outlining the terms of the loan.
Sign Loan Documents
If you accept the loan offer, you’ll need to sign the loan agreement and any other required documents. Be sure to read through the documents carefully and ask any questions you may have before signing.
Receive Funds
Upon finalizing the loan documents, the funds will be deposited into your designated account. You can then use the funds for any purpose you choose.
Where can you get Share Secured Loans?
You can get share-secured loans from banks, credit unions, and other financial institutions. These institutions offer share-secured loans as part of their lending services. You can apply for a share-secured loan online, over the phone, or by visiting a branch in person.
Just contact your preferred financial institution and inquire about their share-secured loan options. They will guide you through the application process and provide you with the necessary information to secure the loan using your savings or investments as collateral.
Is a share-secured loan a good idea?
Yes, a share-secured loan can be a good idea for certain situations. It allows individuals to borrow money while using their savings or investments as collateral, which can result in lower interest rates compared to other types of loans.
Additionally, share-secured loans can help individuals build or improve their credit history by making timely payments. However, it’s essential to consider the terms and conditions of the loan, including interest rates and repayment terms, to ensure that it aligns with your financial goals and needs. If used responsibly, a share-secured loan can be a beneficial financial tool.
Things to Consider Before Applying for a Share-Secured Loan
Before deciding to apply for a share-secured loan, consider the following;
- Credit Situation: If your credit score isn’t excellent and you need funds without touching your savings, a share-secured loan could be a suitable option. It may also help you rebuild your credit history.
- Payment Responsibilities: Understand that failing to make timely payments on your share-secured loan can have serious consequences, such as damaging your credit score or losing your savings used as collateral.
- Loan Terms: Ensure you fully understand the terms of the loan agreement, including any fees, payment schedule, and potential repercussions for late payments.
- Explore Alternatives: Look into other personal loan options, including different types of secured loans or unsecured loans, to see if they better suit your needs.
- Building Credit: If you want to improve your credit, consider alternatives like credit-builder loans or becoming an authorized user on someone else’s credit card. Making responsible purchases and paying your credit card bill on time can help establish a positive credit history, making future borrowing easier.
By considering these factors and exploring your options, you can decide whether it aligns with your financial goals and needs.
