What are the Risks of Savings-Secured Loans?

Savings-secured loans allow you to use your savings account as collateral for your loan. Typically the loan is extended from the same institution where you hold your savings. This allows you to continue earning dividends on your savings while you use the loan to make necessary purchases. They are often extended at good interest rates because they are secured loans, and they are usually easy to get since the collateral is already held in-house with the lender. There are some downsides to these secured loans, though.

The main risk involved with these loans comes if you fail to make your payments. With secured loans as opposed to unsecured loans, the borrower assumes all the risk. In this case, you are risking your savings in order to take the loan. You can lose much more than you placed as a collateral if you default. Savings are typically allocated toward college, retirement, or other needs. Losing those savings can be fiscally detrimental. 


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