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"Share loan" What is it? Credit Union


"Share loan" What is it? Credit Union

Old 08-12-2010, 03:48 PM
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Default "Share loan" What is it? Credit Union

My local bank mentioned the use of a "share loan" to purchase a used vehicle.

I guess I am borrowing against my savings??

Can someone explain how share loans worK and their pro / cons?
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Old 08-12-2010, 04:47 PM
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Old 08-13-2010, 08:31 AM
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Old 08-13-2010, 01:34 PM
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A share loan is a way for a bank to screw you out of money.

Basically, the bank freezes the principal amount that you are borrowing in your savings account and you pay prime rate 4-5% back to the bank. The principal will "pay down" the money in your savings account on hold.

So you basically pay the bank interest to borrow YOUR own money.

Wow thats a genius idea!

Why not pay cash and skip the interest to the bank!

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Old 08-13-2010, 02:21 PM
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Actually most credit unions hold the cash as collateral, and loan you the money at 2% over the savings rate that you are earning on the funds. If you have 20K at 1%, they'll loan you 20K at 3%........
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Old 08-13-2010, 02:44 PM
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If you have the cash, either use it or go out and get another loan that is not secured to your cash. Yes you will pay a higher interest rate, but people who feel better taking out this type of loan probably shouldn't be buying the item in the first place. They want the best of both worlds unfortunately you end up with the worse of both!!! If something happens to you(job loss/sickness/natural disaster) you don't have your cash which is tied up and you still have a boat that you need to sell or continue to make payments on. I don't support not paying your bills but in tragic circumstances you can give back/try and sell the boat while still having the money in an unrelated savings account.

The only times this makes sense is in a brokerage account where you possibly have large capital gains if you were to sell to gain access to the money or in taking a loan against a 401K(which I don't recomend unless you are in really bad situation) to reduce paying taxes + 10% penalty. This is like a lay away plan just worse!!!
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