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re: Secured LOCs: What is the point?
Posted on 2/14/16 at 12:25 am to RebelOP
Posted on 2/14/16 at 12:25 am to RebelOP
*sigh*
The products I'm talking about hold the cash for the remaining balance of the loan. It's not like you can cash out the savings account to handle an unexpected expense after taking out a loan against it.
How the hell does handing over 5000 in your savings account in order to get a 5000 dollar loan give you flexibility of liquidity? As you pay it back, you can potentially regain access to the principal.
It's the exact same as far as liquidity goes, except you are being charged for the service. You can't tap that principal, no matter how dire the emergency, without paying off the loan first.
The products I'm talking about hold the cash for the remaining balance of the loan. It's not like you can cash out the savings account to handle an unexpected expense after taking out a loan against it.
How the hell does handing over 5000 in your savings account in order to get a 5000 dollar loan give you flexibility of liquidity? As you pay it back, you can potentially regain access to the principal.
It's the exact same as far as liquidity goes, except you are being charged for the service. You can't tap that principal, no matter how dire the emergency, without paying off the loan first.
This post was edited on 2/14/16 at 12:46 am
2
Posted on 2/14/16 at 1:15 am to Volvagia
OP,
You are over thinking it. The use of a savings/cd secured loan has benefits. I get your line of thinking. It's tied up, I can't touch it, why not pay all cash? Is this for everyone? No. It feeds the need for a small set of people and here is why.
We can agree on building credit as a Pro for a savings/CD secured loan or loc, for someone with limited credit history.
Let's say I have 30k in a savings account and want a car for 30k. If i spend 30k on car, all cash is depleted and I have to self save again at $×××/ mo to build back to $30k.
However, I'll just get a car loan at 2%-5+%(lets assume credit isnt perfect) and keep my 30k in bank. Well here is a better option...
Place a CD secured hold on a 5 year CD paying 3% loaning you the money at 5%. Your net interest rate payback is only 2% vs 2% or higher on the scenario above. And after you payoff the loan, you still have $30k+ interest in bank and didn't have to force yourself to save it.
It certainly isn't for everyone and can work in rare cases to be a better scenario.
This is also subject to the math working out on current market interest rates. I had a CD that was actually paying more than my interest rate at one time. If you are going to do a loan anyway for something, the secured option can be better if the paying interest rate is high enough
You are over thinking it. The use of a savings/cd secured loan has benefits. I get your line of thinking. It's tied up, I can't touch it, why not pay all cash? Is this for everyone? No. It feeds the need for a small set of people and here is why.
We can agree on building credit as a Pro for a savings/CD secured loan or loc, for someone with limited credit history.
Let's say I have 30k in a savings account and want a car for 30k. If i spend 30k on car, all cash is depleted and I have to self save again at $×××/ mo to build back to $30k.
However, I'll just get a car loan at 2%-5+%(lets assume credit isnt perfect) and keep my 30k in bank. Well here is a better option...
Place a CD secured hold on a 5 year CD paying 3% loaning you the money at 5%. Your net interest rate payback is only 2% vs 2% or higher on the scenario above. And after you payoff the loan, you still have $30k+ interest in bank and didn't have to force yourself to save it.
It certainly isn't for everyone and can work in rare cases to be a better scenario.
This is also subject to the math working out on current market interest rates. I had a CD that was actually paying more than my interest rate at one time. If you are going to do a loan anyway for something, the secured option can be better if the paying interest rate is high enough
This post was edited on 2/14/16 at 1:19 am
Posted on 2/14/16 at 10:59 am to Volvagia
No one would ever opt for a secured LOC having access to an unsecured line
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