How Share Secured Loans Work

• When a credit union makes a loan to a member, it can elect to just make a loan without any security if the member's credit is strong. Should the member need a loan when his credit rating is not so good, the credit union may go ahead and lend the money, but put a hold on the member's savings account (share account) until the loan is paid. This is a share secured loan.
  
  

Share Secured Loan Payments

• Credit unions offer many human resource benefits such as direct deposit of payroll of an entire company's employees. Loan payments (including share secured loans) of members can be automatically payroll deducted with each per pay period, which is more budget friendly to the member's finances.
  
  

Example of Budget-Friendly Payments

• If the member's pay periods are every two weeks, and he is obligated for payments totaling $3000 per year, normally he would pay $250 per month. With a payroll-deducted loan, the yearly amount is divided by the member's 26 pay periods. This means his payment deductions will be $115.38 every two weeks.
  
  

Benefits of Share Secured Loans

• Share secured loans are a great way to establish credit for a young person. The loan gets reported to the credit bureaus. Since they are payroll deducted, they are never paid late, so the rating is always good. When the loan is collateralized by a savings account, there is no need for a cosigner to guarantee it.
  
  

Interest on a Share Secured Loan

• Interest that the member earns will be more than bank savings accounts, and the interest paid on a loan will be less. In a share secured loan, the interest she is charged on the loan is offset by what she is earning on the savings account; thus, she ends up paying very little interest on a share secured loan.