Key Takeaways:

  • A share-secured loan uses your savings account balance as collateral
  • You don’t need good credit to qualify for a shared-secured loan
  • Most shared-secured loans are reported to the credit bureaus
  • Lenders freeze your savings account while you repay the loan

A good credit score is the key to getting the best rates and terms on loans and other financial products. If you have bad credit, getting a loan may be challenging. It can also be hard if you haven’t built a score yet. However, a share-secured loan may be an option in either situation.

With this loan, you keep your cash but use it as collateral. This means the financial institution freezes your account, so you can’t access the funds while you repay the loan. Is this the best way to get cash and build credit? Keep reading to learn how the share-secured loans work to determine if they’re a good fit.

What is a Share-Secured Loan?

A share-secured loan is a personal loan for almost any purpose usually offered by credit unions. Unlike traditional personal loans, it uses your savings account or CD account balance as collateral. You may also see share-secured loans called savings-secured loans if they are from a traditional bank and not a credit union.

Share-secure loans have various terms that vary by financial institution. On average, lenders offer terms of two to 15 years, and these loans often have competitive interest rates because of the security your savings account offers.

Share-secured loans are a good option for people with lower credit scores than banks or lenders prefer. They are also good for those who haven’t built a credit history yet. Lenders often decline your loan request if you don’t meet the credit requirements for a personal loan. Since share-secured loans have collateral (your bank account), qualifying is much easier, even with bad credit.

How do Share-Secured Loans Work?

The amount you can borrow on a share-secured loan varies by lender. Some allow you to borrow your full savings account balance, and others set a maximum percentage of your balance you can borrow.

When you borrow a share-secured loan, you receive the funds upfront and can use them however you need. The lender will require a minimum monthly payment that includes interest. If you don’t make your payments, they can take the amount owed from the savings account you used as collateral.

Some lenders free up access to a portion of your savings account as you make payments, and others make you wait until you repay the loan in full. Most lenders don’t require a credit check for share-secured loans, but this may vary by financial institution. The focus is on the savings account balance you’re using as collateral.

Most lenders report the secured loan to the credit bureaus. This can help borrowers with bad or no credit build a credit history. However, it can hurt you if you don’t make your payments on time, as they report on-time and late payments to the credit bureaus.

Reasons to Borrow a Share-Secured Loan

There are several reasons to consider borrowing a share-secured loan:

  • Build credit: A solid payment history builds credit. If you only borrow a loan with monthly payments you know you can afford, you will likely make your payments on time and build credit.
  • Save on future loans: If you establish credit with a share-secured loan, you may improve your credit score. This may open up more opportunities for future loans with lower interest rates.
  • Lower interest rates: These loans are known for their lower interest rates. Combine that with the required collateral, and you may get lower interest rates than personal loans offer.
  • Flexibility: You can use the proceeds of a share-secured loan for anything, allowing you to retain your savings. You can build credit and earn interest on your savings simultaneously.

Reasons Not to Borrow a Savings Secured Loan

There are many great reasons to borrow a savings-secured loan, but there are some reasons you may want to reconsider:

  • Your savings are frozen: Depending on the lender’s requirements, you likely can’t access your savings account balance until you repay the loan in full.
  • You can’t make on-time payments: Most lenders report share-secured loans to the credit bureaus. If you miss a payment, it could hurt your credit.
  • You don’t need to build credit: Share-secured loans are best reserved for those who need credit. If you have already established good credit, there are better options.
How a Share-Secured Loan Can Help Build Credit

How to Qualify

A share-secured loan lets you borrow money even with bad credit. Here’s how to get started:

  • Research lenders: Get quotes from a few lenders and review their requirements. For example, consider the type of collateral they accept, the annual percentage rate charged, and the repayment requirements.
  • Complete application: After choosing a lender, complete the application for the loan. Pay close attention to any documents you must submit to get approved, including how they verify your savings account balance.
  • Communicate with the lender: The lender will tell you if you need to provide any other documents to get approved. The timeline is usually pretty short for share-secured loan approval, especially if you do as asked.
  • Receive funds: Depending on how early in the day you apply, you may receive your funds from the loan on the same day you apply. The funding speed depends on the financial institution and what they allow.

What are the Pros and Cons of Shared-Secured Loans?

All loans have pros and cons. Here’s what to consider with share-secured loans.


  • Inexpensive: Because share-secured loans use your bank account as collateral, they often have lower interest rates than traditional loans for borrowers with bad credit.
  • Earn dividends: Since you leave your savings or share account untouched, you’ll earn dividends on the money you have saved while building your credit.
  • May improve credit scores: The point of share-secured loans is to help you build credit. If you make on-time payments, you may increase your scores.


  • Freezes your savings: The portion of your savings account used as collateral for the loan becomes frozen. This means you cannot use them while the loan is outstanding.
  • Incurs interest and fees: Like any loan, you’ll pay interest and potential fees on borrowed funds. If you use your saved money, you don’t pay interest.
  • Your savings are at risk: If you don’t make your payments, the lender can take the money from your savings account balance, decreasing your savings.

What to Consider with a Share-Secured Loan

Borrowing money is a big decision and a risk. Here are the top things to consider:

  • Understand the fees, including late payment fees
  • Look at the total cost of the loan after paying interest
  • Determine if the monthly payment is affordable
  • Know what’s at risk if you miss payments, including losing your savings
  • Determine if and when you can access the balance used as collateral

Alternatives to a Share-Secured Loan

Consider these alternatives if a share-secured loan isn’t the right option for you.

  • Title loan: If you own a car without any loans, you may borrow money using your car as collateral. These loans have high interest rates and fees and should only be used in an emergency when there aren’t any other options.
  • Credit builder loan: This loan is similar to a share-secured loan, but instead of receiving the funds, the lender puts them in a savings account. The lender reports all payments to the credit bureaus, and you receive the funds after you repay the loan in full.
  • Personal loan with a co-signer: Some lenders allow co-signers on a loan. This should be someone with a higher credit score than you and has a good income. They increase your chances of approval for a standard personal loan with lower interest rates.
  • Secured credit card: You pay a deposit for this credit card, which becomes your credit line. The credit card company uses the deposit as collateral. If you miss payments, they keep your deposit. If you make your payments on time, you build good credit.

Final Thoughts

Before borrowing a share-secured loan, consider all of your options. Tying up your savings account balance isn’t bad because it ensures you won’t spend it. However, it limits the funds you have available in an emergency.

If you need to improve your credit scores or build credit initially, a share-secured loan may help if you can afford the monthly payment. Look at the big picture and ensure you choose the loan that solves your immediate financial need while remaining affordable. If your needs are more immediate and you don’t have a savings account for collateral, consider a title loan that uses your car as collateral. It takes only a few minutes to complete an application and get a no-obligation quote. Have questions? Call us at 1-888-700-8900.

Written by Samantha Hawrylack

Written by

Samantha Hawrylack

Samantha Hawrylack writes for our company and is an expert in personal finance. Sam received her Bachelors of Science in Finance and her Masters in Business Administration from West Chester University of Pennsylvania. She began her career in the financial services industry and shifted to an entrepreneurial role where she could directly impact clients. Sam has an impressive background in personal finance and business management.