I want to talk about a very humble and oft-ignored type of
loan that our Credit Union and most financial institutions offer. It's the
Share- or Deposit-Secured Loan.
Savings-secured loans (I will call them this way right now because
what secures them is
your savings, in one way or another) are no-fuss loans
guaranteed by money that you have deposited in your account, be it in shares or
a certificate. The money in your account continues to accrue interest but it's
frozen under a loan guarantee.
With this, a loan is granted for the amount that has been
frozen -some financial institutions don't offer the full 100% of the frozen
amount on loan, but I know that OAS FCU does- with a very small interest rate
that is X percentage points above the rate of the account that has the secured
funds.
To explain it specifically, our Credit Union offers a 2.5%
APR above your share or certificate rate. So, if you have a certificate in
which you are earning 0.25%, your secured loan rate using that certificate
would be 2.75%.
Why would you borrow against your own money, you wonder?
This type of loan is not for everyone, but there are many
good reasons to use them.
For example if you are due to receive some funds in a few months’
time but you want to make some larger purchases now, you can take out a secured
loan against your current savings and pay it back when you get those funds you
expected.
If you are a bad saver. Yes, you read right, a bad saver. They
exist and many of us have been bad savers at one point or another. And now you
can find yourselves with a need for some extra funds but hate to see those
hard-earned savings go bye-bye. Well, in that case a secured loan lets you have
your cake and eat it, too.
What else... oh yeah, your kids. If one of your kids wants
to borrow money from you? Offer them to take out a loan with you against our
savings and make it their responsibility to pay it back, as it goes on their
report if they are late, aside from pissing you off, of course. It can help
them learn to borrow responsibly.
Which brings me to
the next type of person who can benefit from secured loans: people
who need to
establish or improve their credit.
When I wrote before on how to establish a credit history,
for people newly arrived to the United States, and how to improve one's credit report, I brought the subject of secured loans and credit cards up. Because
these loans are secured, the application processed is rather just a
formalization of the loan and at our Credit Union, at least, there are no
denied share or certificate-secured loans or credit cards.
So, if you find yourself in one of the situations above, or
have any other good reason to borrow money easily while keeping your savings
where they were, contact the Credit Union's loan department.
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