Does anyone recommend Share Loans?

Question

My credit union is offering share loans at a fixed 5.00% up to 10 years. They advertise this type of loan to build credit, but at the low interest rate it seems like it may be a good idea to borrow against my own money. Anyone have experience with these types of loans?

Sam W. · Answer

Brandon,

Why not just use the $15K in your share account to pay for the repairs and pay yourself back when you refinance?  Same effect and you save yourself the 6 months worth of interest charges.

Brandon Eleazer · Answer

Good suggestion. I was hoping this thing made sense so I'm not forced to come out of pocket again(the purchase was enough!)

Thanks again for the advice.

Brandon Eleazer · Answer

Thanks for your input Ned. I'm weighing this loan Vs asking a friend for a loan, and would need to pay him 8-10% ($1,200-$1,500)

Brandon Eleazer · Answer

Sam,

The thought is:

$15,000 loan @ 5%, 10 years= $159.10/month payment
Property is owned free and clear; loan will pay for $15k repairs.  Cash out refinance in 6 months (lender requirement to wait 6 months to refi)
6 months payments X $159.10=  $954.60 total cost
My funds will be tied up for 6 months until the cash out refi can pay off the loan; however only having to pay $954.60 is much lower than many other loan options available (credit cards,  private lender, hard money, etc.) and does not require a lien on the property.

Ned Carey · Answer

That is a very high rate for borrowing your own money. That is doubly true in today's market with rock bottom rates.

Borrowing your own money isn't new, people borrow against cash value of life insurance all the time.  I see no advantage to doing this other than you said to build up credit.

Sam W. · Answer

So the bank uses your money in a share account (drawing .75%)  to secure a loan they make to you for 5%?   And my share account is tied up anyway as collateral (can't withdraw a dollar until I pay back a dollar).

Hmmm....

Brandon Eleazer · Answer

Ned,

Per my conversation with a customer service rep from the credit union, a Share Loan:
-  A loan based on account balance (shares)
- Uses account funds as collateral for the loan 
- Funds in account become available as loan payments are made
- Approval Not primarily based on credit since you're borrowing against your own money
-low interest rate of 5%, up to 10 year term

I plan to take out a share loan to pay for cosmetic renovations and pay the loan off once I refinance with a 30yr conventional mortgage. The strategy is using the banks money to repair the place by putting my own money as collateral. Seems like a decent (inexpensive) way to borrow money if you have the funds available but don't want to use them.

Ned Carey · Answer

I never heard of a Share loan. What is it?

Does anyone recommend Share Loans?

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