August 9, 2013

How Secured Loans Can Help Young Adults

Comment August 9, 2013 by Triangle Credit Union

These days the odds seem stacked against young adults, otherwise known as millennials (those born after 1980). There’s the job market, the cost of education, and a whole host of other pressing issues.

But, they are a resourceful lot, and I have no doubt that this generation will change the world for the better. Despite the gluttony of millennial-themed articles arguing the contrary, there’s a spirit of helpfulness and empathy present (this great infographic puts those articles to shame). If you know where to look, you can find it. Just a few weeks back, I stumbled upon such an example in a thread on Reddit where several young adults were offering each other advice about moving to New Hampshire. They happened to mention Triangle, but, showing their resourcefulness, they brought up a product that I hardly think about, secured share loans. Here’s what they had to say:

“I…recommend Triangle CU. If you need to work on your credit, they offer secured loans that are reported to the 3 bureaus…idiotproof way to build credit as they basically just hold the money you already have.”

Our Redditor friend is absolutely correct, though a little further explanation may be warranted. Admittedly, it does seem like a strange concept to take out a loan on your own money. However, as it was pointed out, payments on a secured loan are reported to the credit bureaus. In turn, the credit bureaus may potentially boost your credit score. If you have no credit, or if you have damaged your credit (don’t be ashamed, it’s happened to the best of us), this is a great low cost way to steadily build your way towards being approved for a car loan, credit card, and hopefully one day, a mortgage.

Here’s how it works using $500 and a 12 month term as an example:

You deposit your $500 into a savings account to be held as collateral, much like a house is collateral in a mortgage, and your car is collateral in a car loan. We then lend you back $500, a different $500. The original $500 you gave us is frozen in the savings account, earning .20% APY. The $500 we gave you will be charged interest, currently 3.00% more than what you are earning, so a low 3.20% APR. Using our Personal Loans calculator, I can determine that your monthly payment will be $42.39, and your total repayment will be $508.69. But don’t forget about your original $500. It has grown to become about $500.54. So, the total cost of the loan is simply the difference between what you have paid and what you have earned ($508.69 – $500.54 = $8.15). For $8.15 then, you will have 12 months of solid payment history reported to the three major credit bureaus.

Secured share loans are a great product, and they seem tailored made to help out young adults. You might even call them “idiotproof”!


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