When you need to buy or pay for something immediately, but don’t want to spend all of your savings, you might need to look into other options to get the funds you need. If your house needs repairs due to storm damage, or if you have a physical emergency that requires you to bring out a ton of cash even with your health insurance, or if you’re just planning to make bigger purchases like a home or a new car, consider getting deposit secured loans.
What Is A Deposit Secured Loan?
A deposit secured loans is a loan that’s anchored on your savings account, a certificate or deposit, or a money market account rather than your credit score. This type of loan is very similar to other loans that are secured by a collateral. However, instead of real estate properties or a vehicle, this loan is secured by your savings. This means that if you default on the loan and fail to make your payments, the lender can take away your savings.
How Does It Work?
Getting a deposit secured loan essentially means that you’re borrowing against money that you already have. However, because you want to preserve that money for later use, you’re taking out a loan with the same money set up as the collateral or security.
A deposit secured loan works like most other types of loan. You apply for the loan and submit the lender’s requirements. You then wait until your application gets approved. The lender will then provide you with a minimum and maximum amount that you can borrow. In most cases, the maximum amount of your loan will correspond to the total amount in your savings account. However, some lenders may only offer a percentage (e.g., 90%) of the total.
After you’ve been notified of the loan’s approval, the lender will give you the amount that you’ve requested in the form of a check or deposit it straight into your checking account. After you’ve received your requested amount, you need to pay back the loan in installments every month with the agreed-upon interest rate.
Who Can Get A Deposit Secured Loan?
A deposit secured loan may seem like a roundabout way of securing funds for emergency expenses, but it’s actually a great choice for a lot of people. For instance, if you have a poor credit score but you desperately need money to use for your home improvement, car repair, or emergency funding, a deposit secured loan can be the perfect option for you. This is because the approval for this type of loan will not be based on your credit score, but on the amount that you have in your savings account.
A deposit secured loan will be a significant help if you’re trying to improve your credit score and your credit profile. It’s also a great choice if you can’t qualify for any other type of loan because you’re still young and don’t have any credit history at all.
Why Should You Get A Deposit Secured Loan?
A deposit secured loan offers many advantages to a potential borrower. Here are some of them:
- Rebuild credit – If you have a poor credit score or don’t have any credit history to speak of, you most likely won’t get approved when you try to apply for most types of traditional loans. It’s easier to qualify for a deposit secured loan because the lender will primarily be looking at your savings account.
- Lower interest rates – Generally, loans that are backed by collateral have lower interest rates compared to, for example, unsecured personal loans. This is also true for deposit secured loans. Because you’re putting up your savings account as your collateral, the risk to the lender is lower. As a result, they’re also more likely to ve a lower interest rate.
- Protects your savings – With a deposit secured loan, you’ll be able to protect your savings because you don’t have to touch your savings account. During the life of the loan, you’ll gain interest on your savings, but you’ll also get to use the loan proceeds to pay for emergency or necessary expenses. You’ll regain possession of your savings account once the loan is completely paid for.
Not having enough money can be quite frustrating, especially when you desperately need the cash for emergency purposes such as a household or car repair, or hospital bills. With deposit secured loan, you’ll be able to get the money that you need without emptying your savings. This is also the perfect choice if you’re trying to build a credit history or trying to improve your credit score.