What is an equity loan? Good option to help rebuild credit

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What is an equity loan?

With a loan secured by equity, you use your own money as collateral to obtain a loan from your financial institution. This form of secured loan is similar to a secured credit card which provides a fixed credit limit equal to the cash deposit you make with the credit card company.

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To get a loan backed by stocks, you need to deposit money into an interest-bearing savings account, money market account, or CD. Your financial institution uses this money to secure your loan in the event that you fail to make your payments.

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Because a loan secured by equity poses less risk to your bank or credit union, there are fewer hurdles to get through to get the loan. You may not even need to have your credit checked.

Equity secured loans are also referred to as passbook loans, savings secured loans, or cash secured loans.

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What are the benefits of getting a secured shared loan?

You might be thinking, if I have money to put in a savings account, why wouldn’t I do it instead of getting a loan? The short answer: to rebuild your credit.

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The biggest benefit of a secured shared loan is that it can help you improve your credit score and rebuild your credit. Having bad credit can impact many areas of your life. You’ll have to pay more for auto insurance, you’ll have a harder time finding rental property, and you might not get a cell phone contract.

With bad credit, you are also subject to higher interest rates, which makes it difficult to pay off existing debt because most of your payments go towards interest, not your account balance.

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While it might seem silly to have to put your own money on a loan, it can help you save money in the long run when you rebuild your credit.

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