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Financial Education

FAQs About Share Secured Loans

As a member of SIU Credit Union, you already know we’re here to help you manage your money and let it grow in the best ways possible. That typically involves wisely using only the products and services best suited to your needs and goals.

One of our most convenient products is share secured loans. If you’re wondering what these loans are, and if they’re for you, read on!

Here are some answers to frequently asked questions about share secured loans.

1.) What are share secured loans?

Share secured loans are essentially a way for you to borrow, using your own savings as the collateral. Instead of using all your savings to make a purchase, thus losing out on all future dividends and your emergency safety net, you’re borrowing against that sum while your money stays in your account. You will pay a slightly higher-than-average interest rate until the loan is paid up, but most borrowers find the convenience to be a reasonable offset.

2.) How does it work?

In a share secured loan, your credit union will place a hold on the amount you want to borrow against. There is usually a minimum you can borrow, ranging from $200 to $500, and a maximum set at 80-100% of your entire savings balance. When you apply for the loan, your credit union will grant you the amount you requested in the form of a check or a deposit into your checking account. You can make payments on the loan through a monthly automatic withdrawal from your checking account, via direct deposit or by sending in a check each month.

3.) Who would benefit from a share secured loan?

While there are many benefits to a share secured loan, borrowers with damaged credit who may not otherwise qualify for a loan stand to gain the most. Since there is minimal risk, most credit unions will grant instant approval of a share secured loan without requesting a credit report. However, your credit history will have an impact on your interest rate.

4.) When will the funds I am using as collateral be available for me to use again?

The availability of these funds varies by credit union. Some credit unions will release these funds in predetermined amounts as you make monthly payments on the loan. Others will not allow you to access the frozen portion of your savings account until you’ve paid the entire loan. Regardless of your credit union’s policy, your shares will continue to earn dividends while your funds are frozen. Click here for SIU Credit Union’s loan options.

5.) What are some advantages of a share secured loan?

  • Since the lender is taking very little risk, they don’t need to charge a high interest rate to make their risk worthwhile. Interest rates on share secured loans are often only 1 to 3% above the dividend rate on your savings account. Since your account is earning dividends throughout the life of your loan, the actual loan ends up costing you much less.
  • You can usually get on-the-spot approval for a share secured loan. Your credit union only needs to verify the amount in your savings, approve of the amount you want to borrow, and place a hold on the funds you’re using to secure it. Once you’ve been approved for the loan, you can use the money in any way you’d like.
  • Improve your credit score. While the actual loan won’t improve your credit rating much, you can use the money you’ve borrowed to pay off outstanding loans and increase your credit score.
  • Low requirements. There is generally no credit check when you apply for a share secured loan. As long as you’re a member of SIU Credit Union and you have enough in your account to sufficiently cover the loan, we’ll be happy to help you take out a share secured loan.

6.) Are there any disadvantages to a share secured loan?

Though the advantages abound, don’t assume that everything about share secured loans are beneficial. Here are some factors to consider before taking out a share secured loan:

  • Increased risk to the borrower. When your own money is used as collateral, it’s your money at risk of being lost. If you can’t repay the loan, you’ll lose the funds you borrowed against.
  • Less credit reward. Your actual loan will not affect your credit score much, even if you are timely with your payments. Since they pose no risk to the lender and usually don’t require a credit report, they don’t offer future lenders much confidence in your financial stability.
  • Interest fees. If you are choosing between liquidating a savings account and borrowing against it, it is probably cheaper to empty your account because it won’t cost you anything. Borrowing always comes with interest fees, and even when the interest rate is favorable and the cost is offset by the dividend payments to your account, it still isn’t free.

Still unsure about share secured loans? Feel free to call, click, or stop by SIU Credit Union to have all your questions answered!

Your Turn: Have you ever taken out a share secured loan? Share your experience with us in the comments!


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