Certificate Secured Personal Loans

Sometimes, you have the money you need to make a large purchase, but you can’t get to it because it’s locked into a certificate of deposit (CD). When you can’t wait for your CD to mature, certificate secured personal loans are excellent options to use your money without incurring a penalty for early withdrawal. Once you know about the common terms and conditions of this loan, you can determine if this is the way to go or if you should wait until CD maturity to make your purchase.

Common Loan Terms

When you request certificate secured personal loans, it’s important to know how they work. Your lender will place a note in their system that you may not access your CD until you repay the loan. Because you weren’t going to withdrawal the money until maturity anyway, this is little more than an extra precaution that has no bearing on you. The lender sets the term of your loan to coincide with your CD’s maturity and determines how much you can borrow, usually 90 percent of the CD’s total value.

Your bank might offer you two different repayment options. One option requires equal monthly payments comprised on principle and interest. When the CD matures, the money within is yours. The other option allows you to pay only interest each month, deferring repayment of principle until after the CD matures. You pay back your loan balance at maturity and keep the rest of the money for yourself.

CD Secured Loan Advantages

CD secured personal loans often carry a low rate of interest that hovers around 3 percent more than your CD pays. When your credit is on shaky ground, you can use certificate loans to rebuild your score because lenders are more likely to approve the loan when they already have the full amount sitting in the CD as collateral. Although you will end up paying the interest to use money you already have, it is a solid strategy when establishing good credit is of primary concern.

CD Secured Loan Disadvantages

As with any loan, there are distinct disadvantages to certificate secured personal loans. Most lenders will only accept your CD as collateral when you open the CD with their institution. This means that you cannot take advantage of Bank A’s special interest rate offer if your CD is at Bank B, unless you close your CD, take the penalty and open it at Bank A. To combat this problem, consider the lending options of different banks before opening a CD, even if you don’t think you’ll need this kind of loan in the future.
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