How Do I Borrow Against a Certificate of Deposit?

Sometimes people who need money but have their assets tied up think they have to sell an asset or cash in a CD. That's not necessarily true. You can borrow against most non-IRA assets and pay low interest rates, particularly if the asset has a stable value, such as a CD. But you should use the financial institution that holds the CD to secure the loan. If you have a CD at a local bank or credit union, the solution to your financial dilemma is normally only a few minutes away.

Step 1

Stop at the financial institution where you have the CD and ask to talk to a customer service representative, sometimes called a "relationship banker." These people receive training in loan services of all types, including loans using their institutions' CDs as collateral.

Step 2

Ask for the interest rate they'll charge if you borrow and use the CD as collateral. Normally it's a specified percentage above your interest rate on the CD, usually 2 or 3 percent, depending on the amount of the loan. If you want the most inexpensive method and don't care whether you keep the CD, see if it's cheaper to cash out the amount you need instead of borrowing the funds. If you borrow the funds, you'll keep the CD intact and your savings secure as you pay off the loan.

Step 3

Ask for the repayment options. Some financial institutions only require you to pay interest but allow you to pay down the loan also by applying principal if you choose. Others set up payment plans that pay off the loan in a specified time.

Step 4

Fill out the paperwork for the loan. The financial institution normally lends money up to the early surrender amount or the early surrender amount minus a few percentage points. Normally, you experience no delay in loan approval, since the financial institution holds an asset worth the amount you're borrowing. A credit check isn't even required in most cases.

Step 5

Wait while the bank makes out a check or deposits the money into your checking account. These loans are simple, and most institutions are happy to offer them because they're highly secured. The institution benefit two ways: It gets to keep the money you had in the CD, and it makes money on the loan. If you default, it keeps the CD.

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