Credible takeaways
- CD loans are personal loans secured by certificates of deposit.
- They often have relatively low costs and lenient eligibility requirements, but may be difficult to find.
- When you have a certificate of deposit loan, the funds in your CD will be inaccessible.
- If you default, the lender can seize your CD to recoup its loss.
If you have a CD you want to access early, but don't want to pay the early withdrawal penalty, there's another option: a CD loan. A CD loan provides money based on the amount in your CD, while leaving your CD untouched and still earning interest. It can be a good solution if you'd face an early withdrawal penalty or don't want to lose a good interest rate.
What is a CD loan?
A CD loan is a type of secured personal loan that requires you to pledge a CD as collateral. In exchange, you can borrow against the principal amount in your account — up to the amount you deposited. If you default, the lender can seize your CD and use it to cover your outstanding balance.
Note
The lender charges interest on your CD-secured loan while you’re still earning interest on the CD.
How does a CD loan work?
A CD loan works like most secured loans. You fill out an application and the lender evaluates you and your collateral — a CD, in this case. If you qualify, the lender presents you with the loan amount, term, and borrowing costs available to you.
You can often borrow up to 100% of your CD amount, although it varies by lender. Some banks and credit unions set the loan’s annual percentage rate (APR) at two percentage points above the CD's rate, while others have standard rates for CD loans that may be either variable or fixed. Note that your final rate may be different from the lender’s advertised rate, depending on your credit and repayment term.
Good to know
Once you take out a CD loan, you can no longer access the funds in the CD. Since the loan is secured by your CD, it’s typically impossible to withdraw money.
The key advantage of using a CD loan instead of withdrawing from your CD is that you can avoid any penalties for early withdrawal. It can also be a great option if you locked in a higher CD rate than what’s available currently, especially if you have years left before the CD matures.
Cost-comparison example
Once you have a CD loan offer, compare it against the cost of an early withdrawal from your CD to see which you prefer.
For example, suppose you set up a $2,000, one-year CD with a 5% fixed annual percentage yield (APY). After four months, you end up needing to withdraw the entire $2,000 for an emergency expense. You can withdraw the $2,000 before your maturity date, but will miss out on eight months of interest and incur an early withdrawal penalty. On the other hand, if your bank offers a CD loan, you could leave your CD alone and borrow the $2,000 instead. You would, however, be charged interest and possibly fees.
Here’s an example of how to compare the costs of a CD early withdrawal with a one-year CD loan.
In this case, the CD loan ends up being less than the cost of the early withdrawal. If you find that a CD loan is the best option, you can sign the loan agreement and have the loan proceeds sent to your bank account. You’ll then be required to make payments according to your loan contract. Again, as long as you make all of your payments on time, your CD can remain in place and untouched.
Which banks offer CD loans?
CD loans are not widely available. You won’t find them from most leading national banks like Bank of America, U.S. Bank, or Chase. They’re more common among smaller banks and credit unions. For example, here are a few of the financial institutions currently offering them:
Along with being harder to find, you typically can’t get a CD loan from just any bank or credit union that offers them. To be eligible, most institutions require you to have one of their CDs.
Pros and cons of CD loans
Here are the pros and cons of CD loans.
Alternatives to CD loans
If you need a quick loan but don’t think a CD loan is a good fit or can’t find one, here are a few other options.
Personal loans
A wide variety of companies offer personal loans ranging from $600 to $100,000, or more in some cases, and lend to borrowers across the credit spectrum. Terms typically range from one to seven years, but can go longer depending on the lender and loan’s purpose. While most personal loans are unsecured, some lenders offer secured loans which could be easier to qualify for or may carry a lower rate.
The average interest rate for a 24-month personal loan was 12.49% in February 2024, according to the Federal Reserve.
You can check if you prequalify for a personal loan with multiple lenders within minutes without hurting your credit score. However, prequalification is not an offer of credit, and once you formally apply your score may be impacted temporarily. Your final rate may also be different.
Check Out: Best Personal Loan Rates
Cash advance apps
Cash advance apps offer a quick way to borrow up to around $750 per pay period without a credit check — but they can be expensive. You can download an app like Dave or EarnIn, connect your bank account, and may be able to see your available advance amount within a few minutes.
Cash advance apps typically don’t charge interest, but can charge high fees, relative to the amount you’re advanced — especially if you pay extra to have the money instantly deposited into your account. If you’re OK with the standard processing times, the cash advance could be free.
Related: Payday Loans vs. Cash Advances
Borrow against your 401(k)
If you’re interested in going the secured loan route, you might also consider borrowing against other types of accounts. For example, many 401(k) plan providers offer low-interest 401(k) loans. You don’t have to qualify for one like you would with a regular personal loan, and you pay yourself back over a period of years. But as these can have serious consequences if you can’t repay (or change jobs), you should consider carefully before taking one out.
Learn More: 401(k) Loan vs. Personal Loan
Home equity financing
If you have built up equity in your home, you may be able to take out a home equity loan or line of credit. A home equity loan gives you a lump sum upfront which you then repay via regular monthly installments over a period of years. A HELOC allows you to draw funds as needed from a line of credit based on the equity in your home. However, both these options are secured by your home, so if you default, you could lose it.
Learn More: HELOC vs. Personal Loan
CD loan FAQ
Can you use a CD as collateral for a loan?
Yes, there are banks and credit unions that offer loans secured by CDs. In many cases, you’ll need to get the CD and CD loan from the same institution.
Does a CD loan help your credit?
If you make all of your payments on time and your lender reports payment activity to one or more of the consumer credit bureaus, a CD loan can help to improve your credit.
What is a secured personal loan?
A secured personal loan is a personal loan that requires you to pledge collateral, such as a vehicle, home, CD, or piece of property. If you default on the loan, the lender can seize and sell the collateral to recoup its losses.
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