Blog Highlights
- How it Works: In this blog we’ll define how a share secured loan works, the benefits that set it apart from other traditional lending solutions, and how you can use it to achieve your financial goals.
- Who Should Use a Share Secure Loan? If you’re looking for a way to improve your credit score or want to make a large purchase without draining your savings, a share secured loan may be right for you.
- Take the Next Step: We'll tell you what you need to know about getting a share secured loan so you can begin the journey toward improving your financial health.
What is a Share Secured Loan?
A share secured loan can be a smart way to borrow with lower interest rates and flexible terms. Whether you’re working toward building a stronger credit score or want to make a major purchase without draining your savings, a share secured loan may be the right fit for you!
Unlike other secured loans that may use a car or home to secure a loan, a share secured loan, uses the money in your savings account (also known as a “share account”) as the collateral to lend against.
How it Works
- You pledge a designated amount of your savings as collateral for a loan (the amount you borrow is based on your savings balance). A ‘freeze’ is placed on this amount so the funds will not be available for you to use.
- You make regular, on-time payments that get reported to the credit bureaus. Remember, any late or missed payments can negatively impact your credit score.
- Each month as payments are made, a portion of your 'frozen funds' are released. Once the loan is repaid in full, all your funds are released and available for use.
What Can a Share Secured Loan Be Used For?
A share secured loan can be used for a variety of purposes and purchases. Its versatility is often compared to how you might use funds from a personal loan or credit card.
- Build or repair credit
- Pay off high-interest loans or credit cards
- Cover out of pocket education expenses
- Fund renovations or other home projects
- Settle medical bills or emergency repairs
- Purchase an older model vehicle (that can't be financed through a traditional auto loan)
- And more!
Benefits of a Share Secured Loan
A share secured loan can offer a practical way to access funds with less risk and stress, while protecting your savings. By using the equity that you’ve built in your savings, you get access to a secure and flexible way to borrow, make purchases, and build credit. This type of loan gives you the ability to take charge of your financial needs while your savings remains intact.
- Attractive Rates: Rates are fixed and lower than other traditional borrowing options, title or payday loans, and credit cards.
- Flexible Repayment Options: Loan terms are available for up to 60 months and offer a fixed monthly payment.
- Earn Dividends: The ‘frozen’ funds in your account continues to earn dividends so you can grow your savings and your credit score at the same time!
- No Prepayment Penalties: Make extra payments or pay the loan off early without incurring additional fees.
Is a Shared Secured Loan Right for You?
No matter where you are on your financial journey, a share secured loan can be a great way to get where you want to be. Just about anyone can benefit from a share secured loan but individuals who meet one or more of the following criteria stand to gain the most benefit.
- Have no credit or limited credit history
- Experienced financial setbacks that blemished your credit
- Prefer lower risk, interest rates and manageable, fixed payments
- Want to keep your savings intact while borrowing
Helpful Tip: Divide your loan payment by the frequency of your pay and set up an automatic transfer from each pay period to your loan payment. For example, if your loan payment is $200 each month and you get paid twice a month, set aside $100 from each pay period for your loan. This makes repayment simple, and you'll never have to worry about missing a payment!
Alternative Credit Building Options
While a share secured loan can be a great solution for some borrowers, there are other options for those who may not have a comfortable savings built up yet.
- Co-borrower: Also known as a co-applicant, is someone who is named on the loan, shares financial responsibility for repaying the loan, and also has ownership in the collateral the loan was used for (i.e., home or vehicle).
- Co-signer: Someone who allows you to utilize their good credit history so that you can better qualify for a loan while you make the payments and maintain ownership. A co-signer does not have legal ownership in the collateral that the loan was used for (i.e., home or vehicle).
- Credit Builder Loan: This loan deposits funds into your account which are then ‘frozen’ and used as collateral for the loan. Once the loan is paid in full, all of the funds are released and are available for use.
Both options can serve as a way to build or repair credit. However, it's important to note that both a co-borrower and co-signer are legally responsible for the loan if the primary borrower cannot pay. This also means any late or missed payments will negatively impact the primary borrower, co-borrower, and co-signer. It's best to explore all options before asking someone to or agreeing to become a co-borrower or co-signer of a loan.
A Smart Way to Build a Better Financial Future at A Smart Place to Bank
A share secured loan is more than just a borrowing option – it’s a stepping stone towards stronger financial health and stability. Whether your goal is to establish credit, make a purchase without depleting your savings, or you simply want to borrow with peace of mind, a share secured loan puts the power of your savings to work for you.
To learn more about how a Peach State share secured loan can help you reach your financial goals, contact one of our friendly team members or visit a branch near you today!