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Wallet Canvas > Financial Planning > What is a CD loan? How can I apply?
Financial Planning

What is a CD loan? How can I apply?

June 4, 2025 6 Min Read
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What is a CD loan? How can I apply?
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Photo by Getty Images. Illustrations by bankrate

CD loans are protected for personal loans where a certificate of deposit (a type of savings account with a fixed period and interest rate) is used as collateral. Opening a CD loan will help you avoid withdrawing funds from your CD account before the term ends. This will result in a penalty.

Like other forms of borrowing, you can use CD loans for a variety of reasons, including financing emergency situations, paying home renovations, and consolidating debts, but this method is not an option for everyone. Only those with active CDs can get CD-specific loans.

Best CD Rates

Interested in opening a CD account, but would you like to shop? Take a look at some of the best offers from lenders.

learn more

What is a CD Secure Loan?

CD loans, also known as fixed CD loans, use certificates of deposit as collateral. You borrow your balance and haven’t withdrawn the funds, so the loan allows you to maintain your investment without penalty.

Like other secured obligations, lenders typically offer a lower APR on CD loans than unsecured obligations like credit cards. Lenders can pull back eligibility requirements and charge lower interest rates as their loan balances are supported by CD money.

This is ideal for lenders, but can pose risk to borrowers. By defaulting a CD loan, lenders can seize the CD and cover arrears payments.

How to apply for a CD loan

Applications for a CD loan are similar to application for other types of personal loans. This is the basic procedure:

  1. Compare CD loan terms: Rates vary by lender. Play to make sure you get the best deal for you.
  2. Collect the required documents. Document requirements vary, but you may need to provide a Social Security number, government-issued ID, and latest pay stubs.
  3. Complete the application: Once you have selected a lender, submit the application online or directly.
  4. Pay off your loan as promised: Pay on time to avoid late fees and damage your credit files.

Who is the CD loan?

CD loans may be a great choice for consumers, depending on their own financial situation.

  1. Those building or restructuring credits: “It’s perfect for people building credits and I think it may not be possible to access traditional credit options, such as loans from banks and credit cards,” said John Bell, a certified financial planner.
  2. Those who want to avoid penalties for early withdrawal: CD loans are also a good option for individuals who want to use CD funds as collateral to avoid them Early retreat punishment. You may not borrow money from the funds when you withdraw your CD loan, but you may be able to borrow up to the amount you currently have in your account.

Pros and cons of CD loans

CD Secure Loans are perfect for those who find it difficult to approve a loan but are confident in their ability to pay off the loan. It has its advantages and disadvantages, but it can be a useful borrowing tool for qualified people.

Does a CD loan build credit?

CD loans may be a good way to build credit when making consistent hourly payments, as around 35% of your FICO credit score is based on your repayment history, but it is important to note that not all banks report CD loans to the credit department. If you’re hoping that your CD loan will help improve your credit, check with your bank first, instead of assuming that your payment will be reported to the credit department.

That being said, even though they are less risky than other options, lenders can grab your CD and report your delinquency to the credit department. avoid Balance defaults Because it seriously affects your credit score and can stay on your credit report for seven years.

Three alternatives to CD loans

If you don’t have a qualified CD or you can’t find the option that suits your needs, you can consider some financing options.

Conclusion

If you have a CD and need cash immediately, a CD loan may be viable. Even for people with low or shortages of credit, it is easy to access and wisely managed to help improve credit health. CD funds continue to grow throughout the loan period.

These loans are not without their drawbacks. You may have better options just to withdraw from the CD early. Consult your online lender, bank or credit union to learn more about available CD loan options. It is equally important to inquire about the terms of the loan to determine whether you need to proceed with your loan application or explore alternatives.

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See also  Your money should work for you and your community - not a billionaire
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