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CD Loan (How It Works)

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The only way to use money from a bank or credit union certificate of deposit before the period expires is to withdraw early and pay a tax. However, there is another option: borrowing a lump sum from the bank that holds your CD. You repay the money with interest over time. You have two accounts in total. The CD and this new CD loan are still involved at the same time.

CD loans are less popular than other forms of personal loans, but they can help with two things that other loans can't: supplying cash in a pinch and building or restoring credit. Before you take out a CD loan, make sure you understand the benefits and drawbacks.

What is a CD loan?

A CD loan, also known as a CD secured loan, is a form of personal loan secured by a CD. Other secured loans, such as mortgages or auto loans, may be more common to you since they need collateral in the form of a home or vehicle to back the loan.

CD loans have a few benefits. For one thing, interest rates on secured loans and credit cards are usually much lower. Second, a CD loan is usually easier to obtain and accept than other types of personal loans or credit cards. Depending on the bank or credit union, approval may take as little as one business day.

However, there may be significant drawbacks. If you don't make payments, the lender will take the collateral — your CD — just as with any secured loans. The money from your CD will be used to pay off the loan.

Key features of a CD loan
  • A high approval rate and quick access to funds are typical. CD loan approvals can be made in less than a business day, according to some banks, such as Wells Fargo and Truist (formerly SunTrust). The funds could be available as soon as the next day.
  • Fixed interest rates that are low. Some banks and credit unions charge “2% over the CD cost” as a minimum rate on CD loans. This means that if your CD pays a 1% savings rate, your loan rates will start at 3%. Rates can vary depending on your credit, loan duration, and other factors, but they're unlikely to be as high as the average credit card APR in 2019: 17%. Because a CD loan is less risky for lenders than a credit card or an unsecured personal loan, they can afford low rates.

Who are CD loans best for?

  1. People who are trying to establish credit but do not have access to a credit card. Having a secured credit card or being an approved user on someone else's credit card are two common ways to build credit history. If you can't do either and have a CD, a CD loan could be a viable option.
  2. Those who need emergency funds before their CD matures. To see if a CD loan is right for you, find out what the early withdrawal penalty is on your CD. It could be less expensive and quicker to simply open a CD early. (Use this CD penalty calculator to figure out how much it would cost.) Consider a CD loan if the penalty is greater than the fees and interest on a CD loan.


CD loans will help you improve your credit score. A CD loan provider, like all financial items, records payments to the credit bureaus. Having a track record of on-time payments will boost your credit.

When you take out a CD loan, your CD continues to gain interest. Your CD will help you grow your money while also serving as collateral.


If you can't repay the loan, you'll lose money on the CD. In most cases, if you avoid making payments, your CD will be used to pay off the outstanding debt, and defaulting will harm your reputation. It's a two-for-one deal: you lose money and your credit score suffers. CD loans aren't as common as they once were. With the exception of Wells Fargo and Truist, many national banks do not sell them. Your CD would almost certainly have to be kept at the same bank as the CD loan.

There may be costs associated with CD loans, such as an origination charge and late payment fees. This is on top of the interest you'll have to pay. Your CD funds are frozen or put on hold during a CD loan. When you open a CD, you usually have the option to break the seal in an emergency, withdraw your funds, and pay an early withdrawal penalty. The cost of interest can vary from months to a year's worth. However, if a CD is used as collateral for a loan, you must usually repay the loan before you can use your CD again.

How to get a CD loan

Here’s a step-by-step process:

Apply for a CD loan online, over the internet, or in person at a bank branch. Your earnings, jobs, and credit history can all be scrutinized.

Choose the duration of the loan. Under such restrictions, you will be able to select the exact number of months for the loan. A bank could demand that the loan be for a shorter period than the CD's remaining duration.

Select a loan number. It can't be more than the amount in your CD in most cases,and a bank may cap it at a certain percentage of your CD. Any fees must be charged. There might be an origination charge and late fees associated with CD loans, among other things. Until submitting the document, double-check these. Accept the loan if it is accepted. Your CD funds are placed on hold until the loan is done, while your CD continues to gain interest and its term is extended.

You may use the loan to cover unexpected costs, consolidate debt, or meet other criteria. Pay the loan off in monthly installments. In general, the longer the term, the lower the payment and the higher the total interest paid. Check to see how much time your CD loan has left before it matures; at maturity, you will withdraw funds without incurring an early withdrawal penalty.

A CD loan may be useful in some cases, but be mindful of the risks and ensure that it is a good match for you before committing.

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