topic Re: Share secured loans in General Credit Topics

Share secured loans

arkane — Wed, 28 Mar 2018 00:37:25 GMT

We're obviously very familiar with share secured loans (SSLs) for the purpose of (re)building credit and improving scores. However, do they serve any practical financial purposes? It seems counterintuitive to me to not use the funds available in your account, and instead take out a loan that's fully guaranteed by said funds and paying extra interest on top.

The only scenario that makes sense to me, is that for whatever reason liquidating your entire account would put you in severe hardship, and it's much more preferable to slowly pay back the principal over time. But that's what unsecured loans are for. So you'd also have to have bad enough credit that you either can't obtain an unsecured loan, or the terms are so unfavorable there's no point in doing so.

Re: Share secured loans

Anonymous — Wed, 28 Mar 2018 00:38:20 GMT

I got a 35-40 point boost or so, for 5 years, all for the low cost of around $2.50 in interest total over 5 years.

Totally worth it for me.

Re: Share secured loans

arkane — Wed, 28 Mar 2018 00:42:53 GMT

That's not what I was asking lol

Re: Share secured loans

Anonymous — Wed, 28 Mar 2018 00:45:45 GMT

I reread your original post.

You asked one single question.

I answered it.

If you didn't mean to ask that question but another question, why did you ask that question?

They exist specifically as rebuilder loans -- that's WHY credit unions offer them. No other reason.

http://www.siucu.org/blog/financial-education/faqs-share-secured-loans/

Re: Share secured loans

thornback — Wed, 28 Mar 2018 01:00:21 GMT

The only practical use I can figure is as a means to maintain future dividends, since you're borrowing using your savings as the collateral. Your money remains in the bank while the loaned money is used for whatever purchase / payment thus, the dividends earned on your savings remains intact.

Re: Share secured loans

arkane — Wed, 28 Mar 2018 01:17:50 GMT

@Anonymouswrote:
I reread your original post.

You asked one single question.

I answered it.

If you didn't mean to ask that question but another question, why did you ask that question?

They exist specifically as rebuilder loans -- that's WHY credit unions offer them. No other reason.

http://www.siucu.org/blog/financial-education/faqs-share-secured-loans/

Ok no need to be snippy, I simply asked if SSLs served any practical financial purpose.

@thornbackwrote:
The only practical use I can figure is as a means to maintain future dividends, since you're borrowing using your savings as the collateral. Your money remains in the bank while the loaned money is used for whatever purchase / payment thus, the dividends earned on your savings remains intact.

Fair enough. But until savings interest goes back up to 4%+, you'll still incur a net loss taking out an SSL.

Re: Share secured loans

Anonymous — Wed, 28 Mar 2018 02:01:15 GMT

@arkane
Fair enough. But until savings interest goes back up to 4%+, you'll still incur a net loss taking out an SSL.

There are hundreds of thousands of people who are elderly and scared to death of touching their savings accounts but need $10,000 for a new rooof or whatever. They won't open a credit card no matter what you tell them.

So the credit unions offer these loans as a way to let them know their savings will still appreciate and they can borrow against it with no risk.

My credit union offers SSLs to mostly retirees who are credit adverse plus rebuilders. That's it. There's no point otherwise.

The original reason for the loan was the credit adverse retiree on a fixed income, but then the rebuilders found it and the credit unions used it as a way to market to new members who were in the building or rebuilding stage -- it's cheap marketing. Many banks have to spend $250 per new customer to get someone to open an account!

Re: Share secured loans

SouthJamaica — Wed, 28 Mar 2018 02:04:39 GMT

@arkanewrote:
We're obviously very familiar with share secured loans (SSLs) for the purpose of (re)building credit and improving scores. However, do they serve any practical financial purposes? It seems counterintuitive to me to not use the funds available in your account, and instead take out a loan that's fully guaranteed by said funds and paying extra interest on top.

The only scenario that makes sense to me, is that for whatever reason liquidating your entire account would put you in severe hardship, and it's much more preferable to slowly pay back the principal over time. But that's what unsecured loans are for. So you'd also have to have bad enough credit that you either can't obtain an unsecured loan, or the terms are so unfavorable there's no point in doing so.

IMHO there's no practical reason for it other than score improvement.

However, there might be instances where someone has a CD, has a temporary need for cash but doesn't want to disturb the CD and incur a penalty or lose the interest, so they borrow against the CD.

Re: Share secured loans

thornback — Wed, 28 Mar 2018 02:07:57 GMT

^^ Exactly. Thanks, @ABCD2199, for explaining that use case further.

Re: Share secured loans

arkane — Wed, 28 Mar 2018 03:40:06 GMT

Very interesting!