Why Not Just Use Your Own Money?

Some banks let you borrow the full amount you deposit and pledge as collateral. Others limit the loan-to-value ratio to around 90% or less. For example, for every $100 in your account, the lender might allow you to borrow $90. If your primary goal is to build credit, you don’t need a massive loan. Several thousand dollars should be plenty, and it’s common to start with loans smaller than that. Some banks offer cash-secured loans for up to $100,000, but the maximum amount depends on your bank or credit union. Short Terms Most cash-secured loans come with relatively short repayment terms, such as ten years or less. Those loans can best help you through tough times while improving your credit scores. Installment Payments To repay lump-sum loans, you typically make equal monthly payments throughout the term of your loan. A portion of each payment reduces your loan balance, and the remainder covers your interest cost. Relatively Small You don’t need to go big to take advantage of these loans. If you’re just starting to build or rebuild credit, ask about borrowing a few hundred dollars. A smaller loan is less burdensome on your finances. You only lock up as much money as you have to, and you can keep interest costs low with a small loan. You might wonder why you’d ever bother with a loan when you already have cash available. In some cases, just spending the money makes sense, since you’ll avoid paying interest, keep your debt level low, and avoid damage to your credit if you stop making payments. Build Credit If you have bad credit or you’ve never borrowed in the past (known as having “thin” credit), these loans can be a stepping stone toward higher credit scores....