Borrowing Against a CD: Loan Repayment and Fees

Saving money for the future is always a smart thing to do. It’s imperative that we build up a wall of financial safety in order to protect ourselves from the dangers and risks that are inherent to life: accidents, sickness, job loss, disability, just to name a few. And of course, saving money should also be done so we can get ahead in life and enjoy more options. Money saved can go towards a new home, or an exciting trip. Many people save money – and make money – by putting it aside into certificates of deposit. While you can’t access the money you put into a CD until it matures (at least, not without being penalized for it, and those penalties can wipe out whatever you’ve earned on your CD), you can still get a loan against it, using your CD as collateral. Your lender will probably offer you one or more payment options for your loan.

Some lenders will offer you an interest-only payment plan on your loan. Others will allow you to pay off both the principal and the interest. You can also renew the loan at the same time you renew the CD, although it’s not advisable to continuously renew your CD and your loan at the same time, over and over again. Loans must be repaid eventually and the books closed on them.

Borrowing against a CD can also incur fees and penalties. You may have loan origination fees, and you may have fees associated with your interest rate.

Before you borrow against your CD, be sure to consult with a financial advisor. He or she should walk you through all the pros and cons of borrowing against a CD, and, if you decide to do it, show you the best way how. The more you know about CDs and borrowing against them the less likely you will make a mistake.