How a CD-secured loan is priced
With a CD-secured loan, the bank or credit union holds your CD as security and lends you a share of its balance. At a credit union the same idea is called a share-secured or certificate-secured loan. At some lenders the CD stays in place and keeps earning interest while the loan runs. Some lenders also let you borrow up to the full balance.
Some lenders price the loan as the CD's rate plus a margin, for example 1.00% above the certificate rate at one credit union, and some require the certificate to be renewed until the loan is repaid. The calculator does not let the loan run past the time left on the CD. The limit and the margin differ between lenders, so you enter them from your offer. An installment loan is repaid in equal monthly payments; a line of credit charges interest only on what you use, for the days you use it. The calculator charges that as simple interest on a 365-day year.
Because the CD keeps earning, the real extra cost of borrowing is the loan interest less what the CD earns on the same amount, which the calculator shows. The loan rate is treated as a nominal annual rate, and interest is the rate divided by 12 each month. A lender's APR may also include fees.
Worked example
A $10,000 CD earning 4% a year with a 2 point margin gives 6.00%. With a lender limit of 90%, you could borrow $9,000.00. Borrowing $9,000 for 12 months in equal monthly payments costs $774.60 a month and $295.17 in interest, of which $98.39 is above the rate the CD earns.
Using $9,000 of a line of credit for 90 days costs $133.15 in interest, of which $44.38 is the real cost above the CD rate. A loan of $9,500 would be $500.00 above the 90% limit.
To see what the CD grows to and compare installments with interest only, use the CD secured loan calculator.
For loans secured on property, see the secured loans calculator.
Things to check
Ask how much of the CD the lender lends, the margin over the CD rate, whether the CD can be withdrawn without penalty while pledged, and what happens to it if you miss payments. Compare the loan with other borrowing before you decide.
Inputs for the CD secured loan rate calculator
Loan type
An installment loan is paid back in equal payments. A line of credit charges interest only on what you use.
CD balance
The amount in the certificate of deposit that you would pledge as security.
Rate the CD earns (per year)
The yearly rate on the CD. The rate shown is only an example.
Points the loan costs above the deposit rate
The loan rate is the CD rate plus this margin. Use your lender's figure.
Most the lender lends against it
The share of the CD you can borrow. Use your lender's figure.
Time left on the CD
The loan cannot run longer than this.
Amount you borrow or use
The loan you take, or the line of credit you use.
Loan period
How long you borrow, in the units chosen next. Installments need months.
Loan period is in
Months suit an installment loan. Days suit a line of credit you use for a short time.
CALCULATOR QUESTIONS
CD secured loan rate calculator questions
What is a CD-secured loan?
A loan where the lender holds your certificate of deposit as security. At some credit unions the CD keeps earning interest while the loan runs.
What rate is charged on a CD-secured loan?
Some lenders price it as the CD rate plus a margin. Enter the margin from your offer to see the loan rate.
How much can I borrow against a CD?
It depends on the lender. Some lend a share of the balance and some the full balance. Enter your lender's figure.
Is the loan rate an APR?
The calculator uses a nominal annual rate divided by 12 each month. A lender's APR is the interest rate plus the fees charged with the loan.