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FAQs About Share Secured Loans
FAQs About Share Secured Loans2/8/2018

african american couple sitting at desk with financial advisorWondering about share secured loans? Here’s all you need to know about this unique product that can provide a low interest rate plus credit building and repair:

1.) What are share secured loans?

Share secured loans allow you to borrow against your own savings, using it as collateral. Instead of liquidating your account to make a purchase, thus losing out on all dividends and an emergency safety net, you borrow against that sum while your money stays in the account.

2.) How does it work?

Your credit union will place a hold on the amount you want to borrow against. When you apply for the loan, you’ll be granted the amount you requested in the form of a check or a deposit into your share account. You can make payments on the loan through an automatic withdrawal from your account, via direct deposit or by sending in a monthly check.

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

Borrowers with damaged or no credit, who may not otherwise qualify for a loan, stand to gain the most from these loans. Since there is no risk to the lender, most credit unions grant instant approval of a share secured loan without requesting a credit report.

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 your monthly payments on the loan. Others will not allow you to access the frozen portion of your savings account until you’ve paid up the entire loan. At MCCU, we'll give you access to your funds once your loan is paid in full.

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

  • Inexpensive. Interest rates on share secured loans at MCCU are 3% above the dividend rate on your savings or Certificate account.
  • Convenient. You can usually get on-the-spot approval for a share secured loan. Once you’ve been approved, 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 applying for a share secured loan.

6.) What are the disadvantages of 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.
  • Less credit reward. Since they pose no risk to the lender and usually don’t require a credit report, your loan will not affect your credit score much.
  • Interest fees. If you are choosing between liquidating a savings account and borrowing against it, it may be cheaper to empty your account as it won’t cost you anything.


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

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