After 10 years of marriage, I’m still enjoying living in the first home I moved into with my husband. Buying a first home can be one of the most exciting events in a person’s life. Before making this important expenditure, people need to first sit down and determine how they will successfully finance it. After all, a home will likely be the most expensive purchase you make in your life. Talk to a loan officer and determine how much money you can reasonably borrow. Then, decide how much money you want to use as a down payment. You also must decide how many years you will finance your home for. On this blog, you will learn about the process of buying a first home with a loan.
A deposit secured loan is a loan that is secured with some type of cash deposit as collateral. It's an interesting type of loan for someone who already has funds available, but may not want to spend those funds, or may need a loan in excess of those funds. Here's what you need to know.
What Is a Deposit Secured Loan?
Do you need a personal loan? If you need a personal loan and you don't have good credit, it can be difficult to find options. But one way you can secure a personal loan is through a deposit. With a deposit secured loan, you use a certificate of deposit, savings account, or money market account to secure the value of the loan.
As an example, you might need a $20,000 loan but you may have $10,000 in the bank. Rather than spending $10,000 and trying to get a personal loan for $10,000, you could instead get a $20,000 loan secured with the $10,000 balance. This means you still have your cash and the loan money.
What Are the Advantages of a Deposit Secured Loan?
With a deposit secured loan, the bank has some assurances that you will at least pay some amount of the loan. If you don't pay your $20,000 loan, the bank will confiscate the $10,000 and at least be able to recover some of their losses right away.
For you, the advantage is that a deposit secured loan is far easier to get than a regular, unsecured bank loan. It's also likely to have low interest rates and low monthly payments because it's a relatively low-risk loan.
What Are the Disadvantages of a Deposit Secured Loan?
With a deposit secured loan, you do need to have the cash at hand already, which not everyone does. You also can't spend the money that you have while you still have the loan outstanding, so even though you technically have the funds, you aren't going to have them available. And if you do have the money to spend, a deposit secured loan will just add interest to your expenses.
A deposit secured loan is a great alternative to traditional personal loans, but it isn't available for everyone. If you're not sure what your lending options are, your best option is to go to a lender and ask. They can tell you whether you qualify for any of their loan packages, or what you might have to do to qualify in the future.