What Is a Certificate Secured Loan?

A certificate secured loan is a type of agreement in which you pledge a type of deposit account to a financial institution in exchange for access to a sum of money. You can use this money to make a major purchase, consolidate bills, pay personal expenses or finance higher education. The deposit account that you pledge in a certificate loan is known as a certificate of deposit. With this type of account, you agree to invest a sum of money with a financial institution for a specific period of time and, in exchange, the bank agrees to pay you interest on your money.


  • A certificate-secured loan is a loan that you receive based on the amount of money that you deposit at a financial institution, which acts as security for the loan.

Types of Certificate Loans

Two types of certificate loans exist: installments and lines of credit. With an installment loan, the financial institution provides you with one lump sum of money. You then make equal monthly payments to repay the amount you borrowed over a term agreed upon with the lender.

In a certificate line of credit, the lender makes a specific sum of money available for you to access as needed. As you spend the money, the lender sends you a monthly bill requesting a minimum payment on the amount you borrowed. As you make payments, the money becomes available for you to spend again.

If you have either type of certificate loan and fail to make payment as required, the financial institution seizes the funds in your certificate of deposit account to settle the debt.

Terms and Amounts

With a certificate loan, the term of the loan must be equal to or shorter than the term on your certificate of deposit. For example, if your certificate of deposit has a three-year term, your installment loan must be repaid within three years.

If you have a line of credit, you must repay all the money spent from the line within the three years, and at the end of the term, the loan would be closed. The amount of a certificate loan typically cannot exceed the amount of your certificate of deposit.

Requirements of a Certificate Loan

To apply for a certificate loan, your lender will have you complete an application. You need to provide information about your monthly income, any debts you owe, as well as personal information like your address and Social Security number. The lender may request copies of your tax returns or pay check stubs to verify your income. The bank will also take the certificate or account form that you were given for your certificate of deposit and hold it until you pay off your loan.

If another person is a co-owner on the certificate of deposit that you wish to pledge, his must either have his name on the loan or sign a form giving you permission to pledge the account.

Interest and Cost

Once pledged as collateral, your certificate of deposit continues to earn interest at the rate promised by the lender. Typically, the rate of interest for your certificate loan is equal to a certain percentage above the rate charged for your account, such as two or three percent.

For example, if your account was earning interest at 3 percent, the lender would charge you 2 or 3 percent above that amount, making the interest rate on your loan 5 or 6 percent.

The lender may also assess application, processing or closing fees for the loan. The amounts of these fees vary among financial institutions.