How to Get an Installment Loan Guaranteed by a Savings Account
A secured loan is a good way to help build or rebuild your credit. A secured installment loan, also called a passbook loan, is a loan made against money contained within a savings account or certificate of deposit. The bank will issue the loan in an amount equal to or less than the amount of the funds on deposit. The principal of the loan must be repaid plus interest. The issuing bank or credit union will report the installment loan to the credit bureau and a good payment history on the loan can help boost your credit score.
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Instructions
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Open a savings account at a bank or credit union. If you already have a savings account, ensure that there are enough funds in the account to cover the amount of the installment loan you want to take out.
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Meet with a service representative at the bank or credit union. Inform the representative that you'd like to take out a secured installment loan. Have your savings account number and identification with you.
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Read any documents carefully before signing. Make sure you are comfortable with the repayment terms and interest rate of the loan agreement, and that you understand what actions constitute default and the penalties assessed for defaulting. Obtain a copy of the loan agreement for your records.
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Make all of your loan payments as scheduled and on time. Remember that the money in your savings account is collateral for the loan and if you default, the bank or credit union will seize those funds. Also, keep in mind that you can't withdraw the funds from the savings account until the loan has been repaid.
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Tips & Warnings
A good payment history on a revolving account, such as a credit card, can also help improve your credit score. Consider a secured credit card if you are looking to rebuild your credit. With a secured credit card, you place funds in a savings account or certificate of deposit with the issuing bank and your credit limit will be equal to the amount of the deposit. If you maintain a good payment history, some lenders will issue you an unsecured credit card and return your deposit to you.
If the payments for your loan are set up on automatic debit from your checking account, make sure the funds are in the checking account on the day the payment posts. Otherwise, you could receive a fee for insufficient funds plus an additional late fee for the returned payment on the loan.
