Secured Loan by Deposits
When applying for loan, there may be considerations you need to take when the term collateral comes into the discussion. For personal loan applicants, the use of collateral can provide huge advantage application, especially if applying for huge loan amounts. Fortunately for loan applicants, there are different types of collaterals that can be used for a loan application. Here are some of the things you need to know regarding loans secured by deposits.
What is loan secured by deposits?
Loans secured by deposits are loan products that use personal savings account as collateral to your loan. By using your personal accounts such as time deposit and savings account, you can have a form of insurance in case you default with your personal loan.
Advantages of secured personal loan by deposits
There are advantages for people who will apply for personal loans with deposit accounts as collateral, and they are the following:
- Secured personal loans are much more convenient than unsecured loans. With the help of your savings account, the bank with your savings account will provide you with faster credit decision. They will simply go over your savings account, verify your information as well as the amount in your account, and come up with a decision. Typically, the loan amount provided by the banks is lower than the contents of your savings account, but coupled with spotless credit score and good income, you can get the amount of loan you’re applying for.
- Secured personal loans have lower interests than unsecured loans. With unsecured loans, banks are taking greater risks in approving loans because there will be little they can do when the borrower defaults. Because of this, the interest rates of unsecured personal loans are much higher. With the use of collaterals, loan applicants can strike for better rates since there will be less risks involved in lending money.
- Secured personal loans are easier to get than unsecured loans. When a person has low credit score, it will be much harder for him to get a loan because the risks involved with him are much higher. However, having a savings account means that the risks can be lesser because you may use your savings account as a backup in case there are instances of nonpayment. If that happens, the bank will liquidate your savings account to pay for your balance.
- Secured personal loans can improve your credit score. While all types of loans, so long as they are paid on time and in full, can improve your credit score, personal loans with deposit collateral can help you build your positive credit rating. As part of keeping track of all your financial records, banks will submit your loan to the credit bureaus. However, credit bureaus will also find out that you have a deposit account, which translates to positive credit scores. However, keep in mind that unsecured loans—when paid in full within the terms set—provide better credit scores than secured loans because loans without collaterals have bigger risks of nonpayment.