Savings accounts are excellent places in which to stash those emergency funds you may need at some point for a rainy day. Most banks will allow you to start a savings account with a deposit as low as $25. One of the best things about a savings account is that if you’re ever in need of immediate cash, but you don’t want to touch your savings, your bank may be willing to offer you a pass loan.
Pass loans, which are sometimes called passbook loans, are loans that use your passbook savings as collateral. Regulations vary from financial institution to financial institution about the actual amount the bank will advance you: Some banks will only loan you 50 percents of your passbook balance while others will loan you the entire balance of your savings account. In most instances, you won’t be able to withdraw your own funds throughout the term of the loan, but you will continue to earn interest on your funds.
What Makes a Low-Risk Loan?
Financial institutions like pass loans because they represent a transaction with very low risk. Other factors banks consider when they are assessing risk include:
- Your credit report: The three digit number that comprises your credit score represents a credit bureau’s analysis of how likely you are to pay back money that you have borrowed. When financial institutions review your credit report, however, they look at other factors besides your credit score. They will also take note of any delinquent payments, which is to say payments rescinded 30 days or more after their due dates. They will also look for unpaid accounts that have gone into collection as well as bankruptcies, foreclosures and liens.
- Your loan term: The shorter the term of the loan you’re asking for, the more likely you are to be approved because lenders assume your ability to repay what you borrowed is less likely to change over the short run.
- Collateral: If you’re in a position to pledge something of value as a loan repayment if you fail to make monetary repayments, you’re more likely to be approved for the loan.