Shared Secured Loans are the type of loans that are collateralized, using funds from an interest-bearing account as collateral. What the money in that account does is secure the loan, backing it up. In the event that you do not meet your payment obligations, the bank or credit union can recover the money that was loaned into your account.
These loans make bank transactions have a lower percentage of risk, thanks to the guarantees that they can get their money back in some way. Thanks to this, the requirements are lower to qualify, thus facilitating the application process.
An advantage is that you can also get loans the same day online.
You may have heard of this under another name, such as a savings loan, cash guarantee, or savings book loan. Although it has different names, they are all exactly the same. These are also known as collateralized loans
Knowing that these types of loans use the money in your account with interest as collateral, you need a savings account, as well as a certificate of deposit. A money market account with money to get started would also be worth it.
Regardless of which account you are using, when you apply for a secured loan, you are agreeing to pledge that money to the bank while you repay that loan. When talking about limits when applying for credits, it is usually limited in relation to a percentage of your savings account.
However, banks and lenders sometimes establish different limits, in a general concept, you will see a minimum amount that is between $300 and $500, and the maximum amount can be up to 100% of your balance.
Lenders often charge interest on these loans as well, typically charging between 1% and 3%. Sometimes it can reach 4%, this will depend on the APY.
The payment installments have a term between 5 and 15 years, this depends on the lender and the conditions of the agreement they have reached.
Something that may be very curious about this type of loan is that your funds will remain frozen while you pay it off, but it will continue to generate interest. As we mentioned earlier, that is going to depend a lot on the APY.
There are a couple of fairly clear differences, and these are reflected in the financing, including secured and unsecured personal loans.
The guaranteed ones are usually backed, either by a house, a certificate of deposit, something that serves as collateral, while the unsecured ones are offered based on personal solvency.
Pros and Cons
Like everything, there is a good side and a bad side, and, in the world of finance and loans, this is no exception, it is true that they have a lot of advantages in relation to other types of loans, but also it has a lot of cons.
We invite you to read them and thus make your decision having these in mind.
- Easier to choose.
- Increased choice of lenders, this gives you the opportunity to explore multiple lenders to compare the different options.
- Very low interest compared to other types of loans, these interests are average half of what is common.
- The lender assumes very little risk.
- Immediate approval.
- Improve your credit score.
- They tend to have few requirements.
- Guarantees that offer an additional degree of protection for the lender.
- The financing methods are very fast.
- Risk of losing the deposit, or even your property, in case of not making the payments on time.
- In the event that you lose your property, you will have to work together with your lender to pay, and thus restore your credit
- Great possibility of losing the warranty.
- Loans that are backed by cash may limit the maximum loan amounts.
- Fewer loan options compared to unsecured loans.
Who Would Benefit From Shared Secured Loans?
There are many benefits to a shared guarantee loan – bad credit borrowers who cannot qualify for a loan end up making the most money. Since there is minimal risk, credit unions will grant instant approval of an equity loan without requesting a credit report.
When Will The Fund You Used As Collateral Be Available?
These funds vary widely by the credit union; some credit unions release these funds in predetermined amounts as you make monthly loan payments.
Other lenders will not allow you to access the frozen portion of their savings account until they have paid off the loan in full.
If you want to get Shared Secured Loans you need to:
- Save your money, these cash loans allow you to borrow a greater amount than what you already have saved, and this will also serve as a guarantee to apply for a loan.
- Get a trusted lender that offers good conditions.
- Compare the hundreds of offers that there are, since, as we mentioned, not all the proposals offer favorable conditions.
- Deposit your money, this only should be done when you have found the right lender, and this will indicate where you should deposit the money.
- Formally request the loan.
If your loan request is approved while granting you the credit your account will be frozen until you pay the entire amount requested.
If you don’t qualify for these loans, you still have alternatives you can look up to. For example:
- Credit Card: If they allow it, you can make a payment through a credit card that you already have. Not all lenders or credit unions allow credit card payments, but some do.
- Peer-to-peer Loan: This is very similar to a personal loan only that it is granted through an investor market. It’s also related to loans same day online.
- Cash Advance: You can request it at work, or through your credit card, being the second most viable option since credit cards offer better interest rates.