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What are share-secured loans?

What You Should Know About Share-Secured Loans

Updated on June 18, 2024


If you're looking for a loan option that fits your budget, a share-secured loan may be the solution to reach your financial goals. This loan offers monetary and non-monetary benefits, allowing borrowers to control their finances while obtaining money. Keep reading to understand how a share-secured loan works and its advantages.

What Is a Share-Secured Loan?

These loans offer trustless borrowing that also helps build credit scores. The savings in your account remain untouched until you repay the loan. The loan can be repaid either partially or entirely, depending on the agreement between the parties.

This type of loan is attractive to first-time borrowers or people with limited credit. Approvals can be instant and do not require a credit check.

A share-secured loan can help build a positive credit history if payments are made on time and as agreed. Pay on time because failing to meet the agreement's requirements could put your credit at risk.

Why Use Them?

Share-secured loans can be an excellent option for those who need to borrow money while still maintaining their savings account:

  • Build your credit. These loans can help build your credit. The lender reports payments and payoffs to credit agencies, which should boost your score.
  • Save on future loans. Because a share-secured loan can help improve your credit score, it could lead to lower interest rates on future loans. You'll save money in the long run by having access to better interest rates.
  • Use for any purpose. Unlike other types of loans, you can use them for various purposes. The general rule is to use them only when necessary and unable to pay upfront.

A share-secured loan offers an opportunity to rebuild credit and improve your financial future, even if it involves using a savings account as collateral. Comparing rates online before opting for an unsecured loan is recommended.

How Do They Work?

A share-secured loan is a financial product secured by funds from a savings account, share certificate account, or money market account. When approved, the lender places a hold on the amount you borrow.

You repay through automatic withdrawals, direct deposit, or monthly checks. If the loan is not paid back on time, the lender will use your savings to cover it.

Your savings back up the loan, so avoiding late payments or defaulting is essential. Doing so may incur penalties and late fees. Share-secured loans are often reported to credit bureaus, which can hurt your credit history if you can't make timely payments.

A share-secured loan can be an effective way to build credit. The best way to maximize the benefit is by taking out a small amount and paying it off quickly.

Pros and cons of share-secured loans.

Pros and Cons

Pro: Inexpensive

The lender is taking on minimal risk due to the collateral, so they will likely offer a low-interest rate. The funds remain in the account, allowing you to earn dividends. It would not be possible if withdrawing money from the account was necessary to cover expenses.

Remember that borrowing money may come with a cost, which could be more expensive than what you earn from your savings account.

Pro: Quick approval

A share-secured loan is a type of loan that doesn't require credit checks. Because the funds in your account secure the loan, you'll be approved faster than with a traditional loan. It's an attractive option if you borrow for the first time or have less-than-stellar credit.

Pro: Improve your credit scores

Financial institutions often provide share-secured loans to help consumers improve their credit. These loans enable customers to establish a record of on-time payments.

Con: You could lose your collateral

The financial institution will only take action if the loan is unpaid. In this case, the collateral would be the borrower's savings. It ensures that they can get their money back from the borrower.

Con: Lower your credit score

Lenders could initiate debt collection if you cannot fulfill contractual obligations. Negative marks can appear on your credit reports due to non-payment of loans. Financial institutions may even sue you.

Things to Consider before Applying

A share-secured loan could be viable if you have poor credit and need to cover an expense without dipping into your emergency funds. It can also help rebuild your credit history. However, failure to make the necessary payments on the loan as agreed could result in severe financial consequences, such as damaging your credit or losing your savings.

Understanding the terms of a share-secured loan, including fees, payment schedule, and consequences for late payments is essential. Other personal loan options may be available, such as different secured or unsecured loans.

Establishing a good credit history is beneficial in your financial journey. Making reasonable purchases and paying credit card bills in full and on time can help build a positive record. Doing so may make it easier to get future loans.

How Share-Secured Loans Differ from Other Secured Loans

A share-secured loan is a type of secured loan. To guarantee loan repayment, the borrower must provide collateral, such as a house, vehicle, or cash.

A share-secured loan is a type of loan that uses the cash in an account as collateral. Other secured loans include mortgages, home equity, auto, and certificate-of-deposit (CD) secured loans.

How Do You Qualify?

Qualifying for this type of loan is straightforward, as the most important factor taken into account by lenders is how much money you have saved in your account. Many lenders offer instant approval for this type of loan, allowing you to access funds on the same day they apply. Here's how to get started:

  1. Research different lenders. You should research which lenders offer share-secured loans. The type of collateral used for the loan may determine what lender to seek out. Some banks only allow savings as collateral, while others could accept a certificate of deposit (CD).
  2. Consider all the factors. Different lenders may have additional terms and conditions, including interest rates. Many lenders allow you to borrow up to 100 percent of your savings or CD balance. In contrast, others will offer a percentage of the deposit instead. The repayment timeline for share-secured loans can range from five to 15 years, depending on the lender and the amount borrowed. Research what you need and who will provide those benefits to get the best terms possible.
  3. Apply in person or online. Many lenders offer the option to apply for a loan online. Some lenders may require an in-person appointment before applying. When selecting a lender, you should complete the application with all the necessary personal information.
  4. Find out if you are approved. Approval for borrowing money could be instant or take a few days. Once approved, you can start utilizing the loan funds.

How to get a share-secured loan.

How to Get a Share-Secured Loan

  1. Save money: These loans enable you to borrow against the money you already have saved. These loans require collateral, which you must provide as cash savings.
  2. Find a lender: Share-secured loans are sometimes available but may be more common at credit unions. You should consider credit union membership requirements before applying for a share-secured loan. If eligible, members of credit unions should check if they offer such loans.
  3. Compare rates: If multiple options are available, ask for a rate quote. Ensuring the lender does a soft credit pull when checking your credit to protect your score is crucial.
  4. Deposit your money: The right lender can help you decide which type of account to open for your loan, such as a savings account, CD (certificate of deposit), or money market account. Once you find a lender and an appropriate type of account, it's time to open the chosen bank/financial institution's accounts and make deposits.
  5. Apply for the loan: Once you open an account, you'll complete a loan application. You receive funds on approval for the loan, and your account will remain frozen until you pay off the loan.
  6. Sign up for autopay: Taking out a share-secured loan is an optional but highly encouraged step to build credit. Payment history is the most critical factor in one's credit score. Making even a single late payment can seriously affect your efforts to build your credit score. Signing up for auto-pay helps ensure you make payments on time and prevents any negative impacts from late payments.

Is a Share-Secured Loan a Good Idea?

Secured loans typically have lower interest rates than unsecured loans. Secured loans are easier to obtain for those with poor credit. Taking out a share-secured loan and making regular payments could be an effective strategy for building or repairing your credit score.

A share-secured loan allows you to borrow money without dipping into your savings accounts. However, this type of loan risks your emergency safety net. You need to understand the pros and cons of a share-secured loan to make an informed decision as to whether or not it is a good option for you.


A share-secured loan is an effective way to build credit, as it's relatively inexpensive. However, you could consider other methods for building credit before applying for a share-secured loan. It's important to review all available options to make the best decision to improve your credit score.

Secured Personal Loan

A secured personal loan may be better than a share-secured loan if you do not have savings. This type of loan uses something else for collateral, such as a car, boat, or RV. Banks, credit unions, and online lenders offer this type of financing.

Credit-builder Loan

A small credit-builder loan may be a better option for those needing to build up money. Nothing secures these loans, which could come with higher interest rates. Credit unions might offer more favorable terms than banks regarding these types of loans.

Secured Credit Card

A secured credit card is a good choice for those looking to build their credit. This type of card requires the user to make a cash deposit which will be held in a collateral account and serve as their limit. Making payments on time with this card type can help demonstrate responsible debt management, assisting users in building their credit scores.


Ultimately, share-secured loans can be a great financial tool and benefit those looking to free up funds or build credit. They are generally less risky due to their secure nature and thus tend to have lower interest rates than most traditional loan products. It's important to understand your loan terms before taking it out. Research lenders and read all relevant documentation carefully. Remember to shop for different offers for the best deal. Also, avoid potential fees, which may be expensive if not monitored closely. Remember, you should only use share-secured loans when you need additional money and have no other alternatives.