When to Do a Secured CD Loan
You may have heard of a secured CD loan, but what are they for, when do you do them? There is a lot to know about these unique financing opportunities and how to use them to your advantage. There is so much out there that you can use for collateral. Most commonly people use real estate, and this is the only type that most banks will accept. There are other options however. Vehicles are most common, but you can find lenders who will take all sorts of high priced items, like jewelry and other collectibles. In a league of their own are secured CD loans.
Certificates of deposits, or CDs, are investment accounts, basically. You put a certain amount of money into an account, under the agreement with the bank that you will not withdraw it for an agreed upon period of time (12 months is common, but you can do them for years) and in return the bank gives you a higher interest rate than you would get if you just had these funds in a normal savings account. You only want to do this with money that you are sure you won't be needing to touch for a while, but if you do in fact have money that you won't be needing to touch that you don't want to otherwise invest a certificate of deposit is a good, low risk, way to get some more return on your savings.
When you get secured financing you are putting up some form of collateral with the bank that they can take to recover their funds if you fail to make your payments. This lowers the risk the bank is taking when they lend to you, and in return, you get a lower interest rate. Another bonus to this route is if you have a bad credit history you will have a much easier time getting approval for your application.
Now that you understand all of that, back to the question of when to do a secured CD loan. This is where you use your certificate of deposit as collateral. To do this, you have to first get together enough money to buy a CD, and then you'd want to take out financing using that as collateral soon after doing that, because of the short period of time that the certificate of deposit is valid for (usually about twelve months, but you can set them up for longer). So why would you want to do this, exactly? Mostly, these are set up for people who have a bad credit history. Really, you can typically get any type of secured loan with bad credit, however when you have a really bad history (such as a recent bankruptcy), or nothing else to use for collateral, this way be the easiest way to go for you if you're looking to get some type of financing to rebuild your credit history. You need a positive payment history so you can do things easier in the future, and this is a direct way to go about doing that. It's also one of the cheapest options in terms of interest rates because not only is the interest rate itself low on this type of financing, but you're also still earning interest from the certificate of deposit.
So, in conclusion, when should you do a secured CD loan? When you are looking to rebuild your credit history and want to do it the cheapest way possible.