You may have heard of an Equity Secured Loan by another name, including Loan secured by Savings, Secured Cash Loan, and Passbook Loan. They are all the same.
How do equity-backed loans work?
Since savings-backed loans use the money in your interest-bearing account as collateral, you will need a savings account, CD, or money market account that has money in it. to begin. Whichever account you use, when you apply for a loan secured by stocks, you agree to pledge that money to the bank while you pay off the loan.
When it comes to loan limits, you are usually limited to borrowing a percentage of your savings account. However, banks and credit unions may set different limits; you will typically see a minimum loan amount of between $ 200 and $ 500 and a maximum amount of between 80% and 100% of your balance.
Banks and credit unions also charge interest on these passbook loans. They typically set a fixed rate by adding 1% to 3% to the Annual Percentage Return (APY) of your account. For example, if your interest-bearing account earns 1% APY, the interest you will pay on your secured equity loan will vary from 2% to 4%.
After the lender issues the funds, the money in your account is put on hold so that you cannot access it. You will make fixed monthly payments over a period of five to 15 years, depending on your lender and the terms they offer. You will be able to access your funds again when you pay off your loan.