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Established Contributor
Posts: 724
Registered: ‎06-06-2012
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secured installment loans?

I never here this talked about. Do banks generally do these?

 

Was thinking it may be good to add a small installment loan to my profile. My credit may be good enough for unsecured, but I would think they typically would want proof of income which is difficult for me to prove, I'd rather just give them the money for a cd or something for 6 months.

 

Anyone do this before?

 

 

Valued Contributor
Posts: 2,857
Registered: ‎06-08-2012
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Re: secured installment loans?

Ive asked about these today and didnt get much of a solid answer in terms of whether they are good ideas or not.  My credit union will do one without a hard CR pull at all.  You deposit xxx amount into savings account and they give you that amount back (some places are 1 for 1 or 80% of deposit).  The interest rate was variable 10-15% rate for 36 months.  At 3500 the payback was like 105 per month for me.  As you pay off the loan that portion of the payment that relates to principle is accessible.

 

Seems like a good way to get some points but the concerns expressed relate to AAoA and how this could lower it.



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Established Contributor
Posts: 724
Registered: ‎06-06-2012
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Re: secured installment loans?

Yeah obv AAoA takes a hit at first, but I was thinking longer term. If you only have 3 accounts obv it would be a big hit but if you have 15 or 25 than one new account won't bring it down much. Was thinking more long term about the benefits of having an additional installment loan that will report for 10 years after it's paid off.

 

Of course the bank or CU has to report it for this to work at all.

Moderator Emeritus
Posts: 12,503
Registered: ‎12-30-2011
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Re: secured installment loans?

[ Edited ]

compassion101 wrote:

Yeah obv AAoA takes a hit at first, but I was thinking longer term. If you only have 3 accounts obv it would be a big hit but if you have 15 or 25 than one new account won't bring it down much. Was thinking more long term about the benefits of having an additional installment loan that will report for 10 years after it's paid off.

 

Of course the bank or CU has to report it for this to work at all.



Many banks (with some notable exceptions like BOFA who has ceased to do any personal loans at all last I checked) do this at way less than 10% APR, I'm pretty stunned at the other poster's experience if it was secured by his own funds.  In general secured APR's run on the low side with USAA (~2% difference from their CD rate) to around 5-6% from what I've seen.  

 

The only issue with the major lenders is most will want to get a 2.5K (USAA as an example) or a 3K (Wells as another example) deposit to do a secured loan; anything less than they'll route you to a secured credit card instead.  Many CU's will do an installment loan for around 1K deposit from what I've seen.

 

Anyway, if you don't have any installment history then I heartily recommend this route for future FICO goodness, but if you do have other installment tradelines, the benefits are going to be less.  There is some wisdom floating around that it's optimal to have an installment loan open at any point in time, but I've never seen this "proven" even anecdotally... and I think that it's looking for extra points in the margin by doing so.  

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