How a loan secured on savings is priced
Some lenders, such as UK credit unions, will lend against money you hold with them, keeping the savings as security. Not every lender offers this, so check with your provider first, including whether your savings can be pledged at all. Some credit unions say the pledged savings still earn a dividend while the loan runs, and that they cannot be withdrawn until the loan is repaid.
The calculator prices the loan as the savings rate plus a margin, and the lender lends a share of the savings, up to the full amount at some credit unions. Some lenders quote a set APR instead of a margin. The margin and the limit are each lender's own, so you enter them from the offer. A term loan is repaid in equal monthly instalments; an overdraft-style facility charges interest only on what you use, for the days you use it. The calculator charges that as simple interest on a 365-day year.
The loan cannot run longer than the time left on the savings. Because the savings keep earning, the real extra cost of borrowing is the loan interest less what the savings earn on the same amount, which the calculator shows. Interest is the yearly rate divided by 12 each month, with no APR conversion.
Worked example
£10,000 in savings earning 4% a year with a 2 point margin gives 6.00%. With a lender limit of 90%, you could borrow £9,000.00. Borrowing £9,000 for 12 months in equal instalments costs £774.60 a month and £295.17 in interest, of which £98.39 is above the rate the savings earn.
Using £9,000 of an overdraft-style facility for 90 days costs £133.15 in interest, of which £44.38 is the real cost above the savings rate. A loan of £9,500 would be £500.00 above the 90% limit.
To see what the savings grow to and compare instalments with interest only, use the savings secured loan calculator.
For loans secured on a home rather than savings, see the secured loans calculator.
Things to check
Ask whether your savings can be pledged at all, how much the lender lends, the margin, how interest is charged and what happens to the savings if you do not repay. A cheaper option can be to compare the loan with using other savings or a personal loan.
Inputs for the savings secured loan rate calculator
Loan type
A term loan is paid back in instalments. An overdraft charges interest only on the amount you use.
Amount in the fixed-term savings
The amount you hold and would pledge as security for the loan.
Rate the savings earns (per year)
The yearly rate on the savings. The rate shown is only an example.
Points the loan costs above the deposit rate
The loan rate is the savings rate plus this margin. Use your lender's figure.
Most the lender lends against it
The share of the savings you can borrow. Use your lender's figure.
Time left on the savings
The loan cannot run longer than this.
Amount you borrow or use
The loan you take, or the facility you use.
Loan period
How long you borrow, in the units chosen next. Instalments need months.
Loan period is in
Months suit a term loan. Days suit a facility you use for a short time.
CALCULATOR QUESTIONS
Savings secured loan rate calculator questions
Can I borrow against fixed-term savings in the UK?
Some lenders, such as credit unions, allow it, but not all do. Ask your provider whether your savings can be pledged.
What rate is charged on a loan secured on savings?
The calculator uses the rate the savings earn plus a margin you enter. Some lenders quote a set APR instead, so enter the margin from your offer to see the loan rate.
Do my savings keep earning interest?
Some credit unions say pledged savings still earn a dividend, but check the terms. The calculator assumes they do.
Is the rate an APR?
No. The calculator uses the yearly rate divided by 12 each month. Check your lender's APR for the cost including fees.