Understanding Share Secured Loans

Posted by Jeremy Wascak April 30, 2018 Categories: Credit Scores Loans
As a member of Towpath Credit Union, you already know we’re here to help you manage your money and let it grow in the best ways possible. That typically involves wisely using only the products and services best suited to your needs and goals.
One of our most convenient products is share secured loans. If you’re wondering what these loans are, and if they’re for you, read on!
Here are some answers to frequently asked questions about share secured loans.
1.) What are share secured loans?
Share secured loans are essentially a way for you to borrow, using your own savings as the collateral. Instead of using all your savings to make a purchase, thus losing out on all future dividends and your emergency safety net, you’re borrowing against that sum while your money stays in your account. 
2.) How does it work?
In a share secured loan, your credit union will place a hold on the amount you want to borrow against. When you apply for the loan, your credit union will grant you the amount you requested in the form of a check or a deposit into your checking account. You can make payments on the loan through a monthly automatic withdrawal from your checking account, via direct deposit or by sending in a check each month.
3.) Who would benefit from a share secured loan?
While there are many benefits to a share secured loan, borrowers with damaged credit who may not otherwise qualify for a loan stand to gain the most. Since there is minimal risk, most credit unions will grant instant approval of a share secured loan without requesting a credit report. 
4.) When will the funds I am using as collateral be available for me to use again?

The availability of these funds varies by credit union. Some credit unions will release these funds in predetermined amounts as you make monthly payments on the loan. Others will not allow you to access the frozen portion of your savings account until you’ve paid the entire loan. Towpath Credit Union will release the funds to you as you pay down the principal balance of the loan.

Regardless of your credit union’s policy, your shares will continue to earn dividends while your funds are frozen.
5.) What are some advantages of a share secured loan?

Inexpensive. Since the lender is taking very little risk, they don’t need to charge a high interest rate to make their risk worthwhile. Interest rates on share secured loans are a fixed amount above dividend rate on your savings account. Since your account is earning dividends throughout the life of your loan, the actual loan ends up costing you less.

Convenient. You can usually get on-the-spot approval for a share secured loan. Your credit union only needs to verify the amount in your savings, approve of the amount you want to borrow, and place a hold on the funds you’re using to secure it. Once you’ve been approved for the loan, you can use the money in any way you’d like.​

Improve your credit score. We will report the loan just as we would a personal installment loan, so it will build credit history.

Low requirements. There is generally no credit check when you apply for a share secured loan. As long as you’re a member of Towpath Credit Union and you have enough in your account to sufficiently cover the loan, we’ll be happy to help you take out a share secured loan.​


Jeremy Wascak
Director of Member Development, Everyday Finance Contributor