Rebuilding your credit can be a difficult process, but it doesn't have to be when you know all of the financial tools available. A share-secured loan is one of the best yet often overlooked tools. But what is it, and how does it work? Here's what you need to know.
What is a share-secured loan?
A share-secured loan is a type of loan secured by the shares of an asset, such as a savings account, certificate of deposit, or (rarely) a retirement account.
To get approved for a share-secured loan, you first need to have the equivalent assets available in some type of account. These assets will then be frozen by the bank and unavailable to be withdrawn until the loan is paid back.
Why would someone want a share-secured loan?
Even though it may seem like a share-secured loan isn't beneficial since you're drawing a loan against the money you already have, there are some benefits to using one:
- Share-secured loans are often cheaper than traditional loans since the interest rate is typically lower than an unsecured loan.
- Share-secured loans are an excellent way to start rebuilding your credit score since they show that you're responsible with your finances and can handle large financial obligations.
- They're easier to get approved for, and many lenders will allow those with poor credit to get one.
What are some things to watch out for when applying for a share-secured loan?
There are a few things to keep in mind when applying for a share-secured loan. First, make sure you have the equivalent assets available in some type of account. This will help the bank freeze those assets and prevent them from being withdrawn until the loan is paid back.
Second, be aware of the interest rate and how it may affect your monthly payments. Make sure you're comfortable with the terms of the loan before applying.
And finally, be sure to read any disclosures thoroughly so you know all of your rights and obligations to the loan.
How to rebuild your credit with a share-secured loan
The bottom line
Rebuilding your credit is not always easy, but it is worth it in the end. By following these simple steps and getting a small share-secured loan, you can rebuild your credit and improve your financial health quicker than you think.
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