What Is a Share-Secured Loan?

When it comes to financial products, share-secured loans stand out as a valuable option for people who are looking for the best loan option to choose while using their existing investments. This type of loan combines the security of valuable collateral with the potential for credit improvement and financial flexibility.

What Is a Share-Secured Loan?

Apart from this, a share-secured loan can also act as a credit-building tool. Therefore, if you take out one, you have a chance to improve your credit score while you pay it back. Understanding what type of loan it is, how it works, its pros and cons, and the perfect candidate will give you the insight you need about a share-secured loan, and you can find out if it is the perfect option for you or not.

What is a Shared-Secured Loan?

A share-secured loan is a type of loan where the borrower uses the value of their shares in a cooperative, such as a credit union, or stocks and other securities, as collateral to secure the loan. This arrangement not only mitigates the lending risk for financial institutions but also provides borrowers with an appealing interest rate, often lower than unsecured loan alternatives.

Unlike selling investments to access cash, which can trigger capital gains taxes and potentially compromise long-term investment strategies, share-secured loans allow borrowers to retain their investment positions, keeping potential growth on track. Essentially, these loans offer a bridge, enabling individuals to access liquidity without upending their financial foundations.

How Does it Work?

When you take out a share-secured loan, the financial institution or lender puts a hold on the deposit accounts or shares you are using as collateral. Nonetheless, you still own the shares and earn any dividends or interest. However, you will not be able to sell them or access the funds until you pay back the loan.

On the other hand, the loan amount, interest rate, and terms will differ depending on the lender and the value of your collateral. Additionally, payments are made over a set term, and as you repay the loan, the hold on your shares reduces proportionally.

Pros and cons


  • Lower interest rates.
  • Credit building.
  • Investment preservation.
  • Flexibility.
  • Cheap.
  • Credit building tool.
  • You can keep earning dividends and interest.
  • Easy to apply for.


  • Risk to assets.
  • Reduced liquidity.
  • Interest costs.
  • Impact on credit score.
  • Frozen savings.
  • Possible loss of collateral.

Who is this Loan Type Best for?

Share-secured loans are ideal for individuals who:

  • Have a portfolio of stocks or shares but do not wish to liquidate their investments.
  • Are looking to build or improve their credit score through a low-risk loan?
  • Need access to funds but want to avoid the higher interest rates of unsecured loans.
  • Are members of a credit union or have investments that can be used as collateral?
  • Are looking for more accessible borrowing options.

Who Should Avoid This Loan Type?

It is not ideal to apply for a share-secured loan if you:

  • You do not need to build or improve your credit score.
  • If you are finding it hard to pay back an existing loan.
  • If you can qualify for other credit-building alternatives.

Now that you have an idea of who a share-secured loan is best and worst for, you will have no trouble figuring out your eligibility.

Where to Get a Shared-Secured Loan

The primary source of share-secured loans is through credit unions, although some online lenders and banks also provide them. Credit unions are member-owned financial institutions. So, they usually offer favorable terms on loans and savings accounts to their members, unlike traditional banks. Hence, if you would like to obtain a share-secured loan from a credit union, you need to be a member and hold shares or deposits with them before you can proceed.

How to Get a Shared-Secured Loan

Applying for or taking out a share-secured loan requires careful evaluation of your financial objectives and situation, but at the end of it all, the entire process is simple to conduct. If you need help applying for this type of loan, here is the guide you need to follow:

  • Evaluate your assets.
  • Research potential lenders.
  • Compare loan terms.
  • Check your eligibility.
  • Prepare your documentation.
  • Submit your application.
  • Review the loan agreement.
  • Finalize the loan. Top of Form, Bottom of Form

Evaluate your assets

The first step is to assess the shares, mutual funds, certificates of deposit, or savings accounts you own that could serve as collateral. Understand the value of these assets, as this will directly impact the amount of the loan for which you can apply. It’s also crucial to consider how comfortable you are with using these assets as security, given the risk of losing them if you fail to repay the loan.

Research Potential Lenders

Share-secured loans are not as commonly offered as other types of loans, so you may need to dig to find a lender that provides them. Start with credit unions and banks where you already have accounts or investments, as having an existing relationship can sometimes offer an advantage. Do not overlook online lenders and niche financial institutions; ensure they are reputable and offer competitive terms.

Compare Loan Terms

Compare their loan terms, repayment periods, interest rates, loan amounts, and possible fees. The aim is to find the most favorable terms that meet your financial capacity and goals. You can also use their customer service and flexibility in terms of early repayment or loan adjustments to compare as well.

Check your Eligibility

Review the lender’s requirements for a share-secured loan. This may include being a member of a credit union, having a minimum amount in shares or savings, and meeting creditworthiness criteria. Even though the loan is secured, lenders may still have minimum credit score requirements, though these are usually more lenient than for unsecured loans.

Prepare your Documentation

Gather all necessary documents required for the loan application. This typically includes identification, proof of income, statements of the assets to be used as collateral, and any other financial documents the lender requires. Ensuring your documentation is complete can expedite the approval process.

Submit your Application

Apply for the loan either online, in person, or over the phone, depending on the lender’s process. Be prepared to provide detailed information about your financial situation as well as the specifics of the collateral you are offering.

Review the Loan Agreement

If your loan is approved, review and analyze the loan agreement. Look at the interest rate, repayment terms, and possible penalties for early loan payoffs or late payments. You also need to understand how your shares or savings will be managed during the loan term and what happens if you default or are unable to pay them back.

Finalize the Loan

Once you agree with the terms, finalize the loan by signing the agreement. The lender will then place a hold on your shares or savings account as collateral, and the loan amount will be disbursed to you. Ensure you have a plan in place for making timely repayments to avoid any risk to your collateral.