Cash-Secured Loans: Your Best Bet for Availing a Personal Loan

25 Jan 2021

Want to boost your financial growth with a timely investment?

Going through exigencies or having to incur a sudden and unexpected expenditure?

A Best personal loan can be your best friend in such situations as it can bridge your financial gap, if any, in real quick time. But, have you heard of something called “Cash-secured loans”, which can help you a great deal in securing the personal loan of your choice? Let us see what it is.

What is a cash-secured loan?

A cash-secured loan is a type of loan that you avail from the same bank/credit union, where you have your savings account, certificate of deposit (CD) or a money market account. This will provide a personal guarantee to your potential lender or will convey a better credit risk about you to your lender as you already have a certain amount of money in your savings. Here, the lender would require that you pledge the cash savings as collateral for availing the personal loan. The secured loan even for bad credit is available online to build your credit. The funds would go to the kitty of the lender, in case you fail to pay the loan back in time.

Cash secured loan to build credit

A cash-secured loan can assist you to build a stronger credit while protecting the amount of money you own in your savings. Such loans can also help you to manage your spending behavior and make you achieve your financial goals sooner.

Also, offering collateral to the lender will enhance your chances of getting a personal loan, in case you are having a tough time getting it approved.  When you pledge an asset (your savings here) as collateral, your lender thinks it’s less risky to grant the loan to you and you may even end up getting a cheaper Annual Percentage Rate (APR).

A few things to note before availing cash-secured loans

  • Cash secured loans usually come with fixed interest rates

Typically, cash-secured loans offer fixed interest rates, which means, your payment remains fixed over a period of time. Risks associated with variable-rate loans (for example, a sudden increase in payment) won't be there in case of a cash-secured loan. You may very well get a bonanza if you manage to get a low rate at the beginning as your Annual Percentage Rate (APR) will be fixed for several years to come.

  • Cash secured loans have short repayment terms

Mostly, a cash-secured loan comes up with a relatively short repayment period (10 years or less).  A cash-secured loan may not be for you if you are looking to have a 20-year mortgage or more.

  • How much to borrow?

Some banks/credit unions allow you to borrow the full amount as that of the collateral you pledge. Some of them may approve a loan amount of up to 90% (or less).

If building credit is your primary goal, we would suggest you not to go for a huge loan. Start with a modest loan, if you have never borrowed till now or you have got a thin/bad credit. Your credit will keep on improving as long as you continue to make timely payments. Make sure that the lender reports your loan to those credit reporting agencies.

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