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How do shared secured loans work?

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Regular Contributor

Re: How do shared secured loans work?


@MaizeandBlue wrote:
The answer to your question is really in the name of the Loan "Share Secured Loan." You buy shares in the credit union, then those same shares are used as collateral for a loan in the same amount as the shares you purchase. As you pay back the loan, the credit union releases an equal portion of your collateral back to you.

In other words it works just like Self Lender except that it runs for a much longer term.

Tehehe, and now i'm confused again. I have to use my own money to pay back my own $3k deposit or is NFCU giving me $3k upfront (after my $3k deposit) to pay off the loan? Self Lender didn't require any upfront costs, I made monthly incremental payments until I paid it off and then was released my money. I wasn't able to pay it down to 8.9% either, so this is all new to me.

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Message 21 of 32
New Contributor

Re: How do shared secured loans work?


@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 

Yes, you are given 3k right up front.

 

Message 22 of 32
Regular Contributor

Re: How do shared secured loans work?


@satio wrote:

@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 


So, in order to invest in a 5 year SSL I would need $3010 upfront and then another $3010 laying around to pay it down to unlock my money? Looking at $6k total still. I thought I understood.. back to the #lostisland

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Message 23 of 32
New Contributor

Re: How do shared secured loans work?


@513credit wrote:

@satio wrote:

@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 


So, in order to invest in a 5 year SSL I would need $3010 upfront and then another $3010 laying around to pay it down to unlock my money? Looking at $6k total still. I thought I understood.. back to the #lostisland


No, you don't need another $3010. You are given $3010 as the loan amount you are taking out.

 

That is what you use to pay the majority of the loan back with.

 

Message 24 of 32
Regular Contributor

Re: How do shared secured loans work?


@satio wrote:

@513credit wrote:

@satio wrote:

@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 


So, in order to invest in a 5 year SSL I would need $3010 upfront and then another $3010 laying around to pay it down to unlock my money? Looking at $6k total still. I thought I understood.. back to the #lostisland


No, you don't need another $3010. You are given $3010 as the loan amount you are taking out.

 

That is what you use to pay the majority of the loan back with.

 


Okay, now I get it. I'd use the $3010 to pay down to $267.89 bringing me to 8.9% and then make monthly $1 payments until the very last payment? And then I get $3,010 back? 

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Message 25 of 32
Moderator

Re: How do shared secured loans work?


@513credit wrote:

@satio wrote:

@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 


So, in order to invest in a 5 year SSL I would need $3010 upfront and then another $3010 laying around to pay it down to unlock my money? Looking at $6k total still. I thought I understood.. back to the #lostisland


Let's try this again...

 

1.  You deposit funds into a NFCU savings account.  For simplicity, let's continue with the aforementioned $3010.

 

2.  You apply for a share-secured loan; that means you're borrowing money, and you use the balance in your share (i.e. savings) account as collateral.

 

3.  NFCU approves your loan for 60 months, and sends you a check for $3010.  They also place a 'hold' on your savings account for the same amount, since it's collateral, after all.

 

4.  You cash the check, so there's now $3010 in your hand, and you still have $3010 in your savings account but you can't touch it because the funds are on hold (again, collateral, right?). 

 

5.  So far so good, but now you have a maxed-out loan, so you immediately pay the loan down to a minimal amount.  For the sake of this demonstration, we'll say you pay $2700 (all-at-once, as in you write them a single check for $2700, which you already have since you just cashed the $3010 check they just sent to you). 

 

6.  NFCU gets your payment of $2700, and your loan balance is now only $310, with the next payment due a few years from now (<---- this is the entire point).  They also release the hold on $2700 of your savings account, since now they only need collateral for $310.

 

7.  You now have an installment loan reporting that's almost paid-in-full, and the interest will be pennies per month.  You also have access to almost your entire savings account, with the remainder of the hold being released as you make payments.


I think you were getting lost on the part about how it's a loan, and they send you loan proceeds. 

 

If you're still confused I strongly suggest putting any plans for this on the back-burner and to continue reading on this site and around the web to better familiarize yourself with the SSL (Share-Secured Loan).

Message 26 of 32
Regular Contributor

Re: How do shared secured loans work?


@UncleB wrote:

@513credit wrote:

@satio wrote:

@513credit wrote:


Thanks... That's what I wasn't understanding.. Why would I have to put up $3k and then pay $3k- it just didn't make sense. Now knowing that after they set it up, they will also give me $3k which I can pay down to 8.9% and then make monthly $1 payments until the final one 4 years, 11 months later to completely pay it off.. In 5 years, do I get my original $3k back? 


You are getting your 3k back a piece at a time as you make payments against the loan. 

 

If you make a lump sum payment right up front you essentially are getting almost all if it back (by it no longer being locked as security against the loan) right up front.

 

When you have completed the loan, you will have gotten all of it back.

 


So, in order to invest in a 5 year SSL I would need $3010 upfront and then another $3010 laying around to pay it down to unlock my money? Looking at $6k total still. I thought I understood.. back to the #lostisland


Let's try this again...

 

1.  You deposit funds into a NFCU savings account.  For simplicity, let's continue with the aforementioned $3010.

 

2.  You apply for a share-secured loan; that means you're borrowing money, and you use the balance in your share (i.e. savings) account as collateral.

 

3.  NFCU approves your loan for 60 months, and sends you a check for $3010.  They also place a 'hold' on your savings account for the same amount, since it's collateral, after all.

 

4.  You cash the check, so there's now $3010 in your hand, and you still have $3010 in your savings account but you can't touch it because the funds are on hold (again, collateral, right?). 

 

5.  So far so good, but now you have a maxed-out loan, so you immediately pay the loan down to a minimal amount.  For the sake of this demonstration, we'll say you pay $2700 (all-at-once, as in you write them a single check for $2700, which you already have since you just cashed the $3010 check they just sent to you). 

 

6.  NFCU gets your payment of $2700, and your loan balance is now only $310, with the next payment due a few years from now (<---- this is the entire point).  They also release the hold on $2700 of your savings account, since now they only need collateral for $310.

 

7.  You now have an installment loan reporting that's almost paid-in-full, and the interest will be pennies per month.  You also have access to almost your entire savings account, with the remainder of the hold being released as you make payments.


I think you were getting lost on the part about how it's a loan, and they send you loan proceeds. 

 

If you're still confused I strongly suggest putting any plans for this on the back-burner and to continue reading on this site and around the web to better familiarize yourself with the SSL (Share-Secured Loan).


"I think you were getting lost on the part about how it's a loan, and they send you loan proceeds."

This was exactly is. Thanks for writing this, I will save it for future reference.

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Message 27 of 32
Regular Contributor

Re: How do shared secured loans work?

UncleB explained it perfectly.

 

Just a few more points, as to why an SSL is a good (and cheap) way to get an installment loan on your reports.

 

1.  A SSL is cheap.  Because it's secured with collateral, the rate is much lower than a traditional unsecured loan.  Therefore, you're paying less interest.

 

2.  You do have to put the money up front as collateral, but you really aren't losing the use of that money for 5 years.  You receive the same amount as loan proceeds.  So, when you open the loan, you have $3010 locked up in savings you can't touch, but you also receive $3010 in loan proceeds.  As you pay down the loan, the collateral is freed up, so you're never really "out" any money other than interest.  (BTW, if you can't afford $3010 for the 5 year loan, you can get a shorter term loan for a smaller amount).  At the beginning, you put up $3010, in the end, you still have $3010 (less some interest).

 

3.  To get the maximum score boost, you need to immediately pay the loan down to 8.9% or less.  You do this with the loan proceeds you received.  Let's say you do this and you pay the loan down to $260.  Now you still have $260 of loan proceeds, and $260 that is locked up as collateral (the remainder is freed).  An important feature of the SSL, and not all CUs do this, is that when you pay the loan down ahead of time, the next payment due is bumped out.  For most loans, paying ahead doesn't do this--you just reduce the principal, but your next payment is still due next month, and you just end up with fewer payments and the loan is paid off sooner.  With the SSL and its bumped out payment due, you can pay the loan down to 8.9% and then there are several years before the next payment is due (the loan is still 5 years, you just "pre-paid" a bunch of the monthly payments).

 

4.  SSLs are easy to be approved for.  In some CUs it's only a soft pull, or no credit check at all.

 

Now the SSL technique is most ideal for people who don't already have an installment loan reporting.  If you have a car loan, mortgage or student loans you're making payments on, a SSL won't benefit you as much, since you already have loans in your mix of credit.

 

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Message 28 of 32
Frequent Contributor

Re: How do shared secured loans work?

I have done SSL at NFCU for all my neices and nephews to give them a leg up on credit scores. A couple of pointers that aren't covered very well:

 

1. You want to understand exactly what you want to do, what actions to take. It is a mistake to go into great detail on how you plan to manage the payback with the CSR that you open the loan with for a couple reasons. The first is that they probably do not understand in detail how credit scores work and how what you are doing is a benefit. The second is that if they do understand what you are trying to do, they may frown on it. Know what you are doing, it is allowed by their rules. Don't discuss the details. NCFU has already tightened up the rules on SSL a couple of times. 

 

2. Once the SSL is opened and paid down, autopay from the collateral account is allowed if there is a balance above the collateral requirement. You want to leave at least a payment more than the minimum in the collateral account. Set up an autopay payment of $1 every month (as an example). This activity will keep the loan actively reporting to the credit bureaus every month without you having to remember to make payments. You must remember to return in a few years when the final few full payments must be made, but no intervention will be required for the years in the interim.

 

 

 

+ 850 FICO8 since 2015, Thanks MyFICO - 5+ years since last HP
Message 29 of 32
New Contributor

Re: How do shared secured loans work?


@bada_bing wrote:

I have done SSL at NFCU for all my neices and nephews to give them a leg up on credit scores. A couple of pointers that aren't covered very well:

 

1. You want to understand exactly what you want to do, what actions to take. It is a mistake to go into great detail on how you plan to manage the payback with the CSR that you open the loan with for a couple reasons. The first is that they probably do not understand in detail how credit scores work and how what you are doing is a benefit. The second is that if they do understand what you are trying to do, they may frown on it. Know what you are doing, it is allowed by their rules. Don't discuss the details. NCFU has already tightened up the rules on SSL a couple of times. 

 

2. Once the SSL is opened and paid down, autopay from the collateral account is allowed if there is a balance above the collateral requirement. You want to leave at least a payment more than the minimum in the collateral account. Set up an autopay payment of $1 every month (as an example). This activity will keep the loan actively reporting to the credit bureaus every month without you having to remember to make payments. You must remember to return in a few years when the final few full payments must be made, but no intervention will be required for the years in the interim.

 

 

 


Yes, very good points and well worth mentioning.

 

Mums the word.

Message 30 of 32
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