Which Banks Offer Passbook and Savings-Secured Loans?

A passbook loan, often referred to as a savings-secured loan or share-secured loan, is a type of secured financing where a borrower uses their savings account or certificate of deposit (CD) as collateral. This allows individuals to access funds without liquidating their established savings. The financial institution places a hold on the collateralized amount in the savings account, ensuring the loan is backed by funds. This structure provides a pathway to borrowing for those who want to avoid disrupting long-term savings goals or build credit history.

Understanding Passbook Loans

The financial institution typically places a hold on the funds equivalent to the loan principal, or a percentage of it, in the borrower’s account. While these funds are held, they generally continue to accrue interest, allowing the savings to grow even as the loan is repaid. Most institutions permit borrowing up to 90% or even 100% of the collateralized amount, depending on their specific policies.

Interest rates on these loans are often lower compared to unsecured personal loans because the risk to the lender is minimal due to the collateral. The loan’s interest rate might be a small margin, such as 2% to 3%, above the interest rate the savings account itself earns. Making timely payments can positively impact their credit profile, as many lenders report payment activity to credit bureaus. Collateral requirements often include the account being established for a certain period, such as a few months, or holding a minimum balance, like several hundred dollars.

Identifying Institutions Offering Passbook Loans

While the term “passbook loan” harks back to an older banking era, the underlying product is still available. Large national banks may not prominently feature these products, often preferring other loan types. Smaller community banks and credit unions are more likely to offer these types of secured loans. Credit unions, in particular, frequently offer “share-secured loans” because their members are shareholders, and savings accounts are often referred to as shares.

To identify institutions offering these loans, individuals can directly contact local banks and credit unions and inquire about “savings-secured loans,” “CD-secured loans,” or “share-secured loans.” Checking the websites of smaller, local financial institutions can also reveal such offerings. Terms and availability can vary significantly, so it is beneficial to search for institutions known for personalized service or those that emphasize traditional banking products. Some institutions may even allow non-customers to open an account specifically to qualify for a deposit-secured loan.

Applying for a Passbook Loan

Once a suitable financial institution is identified, the application process for a savings-secured loan is straightforward due to its collateralized nature. Borrowers contact the institution, in person, by phone, or online, to discuss terms and requirements. This includes confirming the maximum loan amount based on savings balance, the interest rate, and the repayment schedule, which can range from one to ten years.

Required documentation includes government-issued photo identification, such as a driver’s license or passport, to verify identity. Proof of account ownership for the savings account or CD used as collateral is necessary. Lenders may request proof of address, such as a utility bill, and income verification, like recent pay stubs or tax returns, to assess repayment ability. While simpler than for unsecured loans, a formal loan application form is still required.