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Using a certificate of deposit (CD) as collateral for a secured personal loan can help you get lower rates and faster funds than most other credit union or bank loans. It can be a particularly great option if you have bad or no credit, since most lenders don’t have credit score requirements and report on-time repayments.
A CD loan is a low-interest secured personal loan from a bank or credit union that uses your CD as collateral. A CD is an interest-gaining savings account you can’t access until a certain date. If you withdraw the funds early, you have to pay a fee — typically based on the interest you would have earned. CD loans allow you to access your balance at a lower cost.
Since you’re borrowing against a savings account, these loans typically have lower credit requirements and a faster turnaround than other types of funding from a bank or credit union. These are also sometimes called a deposit secured loan. It works similarly to a share certificate loan.
That depends on how much money you have in your CD. You can typically borrow up to 100% of your CD’s account balance, though in some cases it’s capped as low as 75%.
There usually isn’t a minimum loan amount. In the rare case that there is, it’s usually around $500.
Typically, CD loans come with interest rates between 2% and 3% above the dividend rate on your CD. So if your CD comes with a 0.1% dividend rate, you might pay between 2.1% and 3.1% in interest. If you have a CD with a 2.5% rate, you’ll likely pay between 4.25% and 5.25% in interest.
Your loan term is often tied to the maturity date on your CD. So if you can withdraw from your CD in 12 months, you have 12 months to repay the loan. In some cases, lenders offer longer terms that can run as long as five or even 10 years.
While it varies depending on the bank or credit union, you typically must meet the following requirements:
Typically, there are no credit score requirements. In fact, your CD loan might not come with a credit check since you’re providing enough collateral to ensure the bank will get its money back.
You can apply through the bank or credit union where you have the CD. Some might offer an online application, but most require you to apply over the phone or in person. Typically, you’ll follow these steps:
If you have a checking account with that bank or credit union, you might get your money as soon as the next business day — or even faster.
CD loans typically come with monthly repayments. Consider signing up for autopay, if possible. Many banks and credit unions offer interest rate discounts if you make automatic repayments from one of their checking accounts. These can sometimes run as high as 0.5%.
Your bank or credit union will use your CD balance to cover the cost of the loan. It’ll also damage your credit score, since lenders typically report CD loan repayments to the main credit bureaus.
Reach out to your lender before you miss a payment if you think you’re in danger of defaulting. Some might be willing to adjust your terms.
From low rates to fast funding, here are a few perks of borrowing against your CD:
Consider these potential drawbacks before taking out a CD loan:
Not sure a CD loan is right for you? Consider one of these alternatives instead:
CD loans can be a great alternative to personal loans and short-term loans. They’re easy to qualify for, relatively fast and come with some of the lowest rates out there. But you can’t qualify unless you have a CD with an institution that offers CD-backed loans — and not all do.
You can learn about your other borrowing options by checking out our guide to personal loans.
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