Key takeaways

  • CD loans allow you to borrow money from your certificate of deposit without incurring penalties.
  • CD loans can be a good option for individuals with a long credit history and good credit score, but may not be suitable for those with other borrowing options available.
  • CD loans can help build credit if payments are made on time, but defaulting can damage credit.

CD loans are secured personal loans where you borrow money from your certificate of deposit. Like other forms of borrowing, you can use a CD loan for a plethora of reasons, like financing an emergency, paying for a home renovation or consolidating debt. However, this method of borrowing isn’t an option for everyone. Only those who have an active CD can take out a CD-specific loan.

What is a CD-secured loan?

A CD loan uses your certificate of deposit to secure your balance, with the account acting as collateral. Because you’re borrowing against your balance and not withdrawing the funds, the loan allows you to retain your investment without penalty. Like with other secured debt, lenders normally offer lower APRs and more favorable terms for CD loans when compared to traditional personal loans.

Lenders can pull back on the eligibility requirements and charge lower rates because the loan balance is backed by the money in your CD. Because of this, they incur less risk than if the loan balance is unsecured.

While this is ideal for the lender, it can pose a risk to the borrower. If you fail to make your monthly payments for an extended period of time or default on the balance, the lender can seize your CD to cover the delinquent payments.

What is a certificate of deposit (CD)?

A certificate of deposit (CD) is offered by banks and credit unions and is similar to a savings account. It pays interest over a specific period of time, ranging from six months to five years. But unlike a regular savings account, if you withdraw the funds before the term you select ends, you may incur a steep penalty. This makes a CD more of a long-term savings vehicle than one designed for short-term gains.

If you open a CD with a three-year term, the funds must remain in the account for that amount of time. At the end of the three-year period, the CD matures and you can either withdraw the funds or renew the CD for another term and continue earning interest.

You’ll typically have five to 10 days to decide how to move forward once the CD matures. The lender will notify you of the approaching deadline, but contact the company if you haven’t heard anything and think time may be up soon. If you miss the five to 10-day period, your CD may automatically renew if you fail to notify the bank or credit union of your intentions.

What are the pros and cons of a CD loan?

CD-secured loans might be a good idea for some, but they’re only ideal for those who wouldn’t otherwise get approved for a loan and are confident in their ability to pay the loan in full. While there are pros and cons, they can be useful borrowing tools for those who qualify.


  • Easy application process: When you apply for a CD loan with a bank or credit union that holds your CD, you can often get loan approval quickly, sometimes within hours, and receive funds within a day or two.
  • Continued growth: Your CD continues to earn interest throughout the life of the loan.
  • Long repayment terms: Banks and credit unions usually offer generous terms, sometimes allowing you to repay funds for up to 10 years.
  • Good for those with bad credit: Borrowers with poor credit may qualify for a CD-secured loan.


  • Not widely available: Not all banks and credit unions offer CD-secured loans.
  • Need a CD: Most lenders require that you already have an active CD to qualify.
  • High interest rates: Some CD loans carry interest rates that are higher than your CD’s rate. So while you’re technically earning interest on the money in your account, you could pay more overall interest.
  • Cash-out setbacks: You cannot cash out your CD until after you’ve paid off the loan.

Does a CD loan build credit?

Just like with any other loan, you can build credit with a CD loan if you’re consistent with healthy repayment. Since it’s a secured debt, those with poor credit or a thin history can use the loan for credit-building. Plus, most CD-backed loans come with relatively low interest rates and carry a lower risk than other secured loans.

35 percent of your FICO credit score is repayment history. So for those with a low credit score, a CD loan can offer a good route for establishing credit, but only if the monthly payments are made on time and in full.

Even though they’re lower risk than other options, a lender can still seize your CD and will report your delinquency to the credit bureaus. Avoid defaulting on your balance by all means possible. It’ll severely impact your credit score and remain on your credit report for up to seven years.

Who is a CD loan best for?

If you’re in a pinch and can’t borrow money from any other place — like a personal loan or a 401(k) loan — or don’t have access to a credit card, a CD loan is a good option for some. People with long credit histories and a good credit score will benefit the most, as these borrowers can borrow a larger sum of money at a low interest rate. But if your credit score is on the lower end, a CD may still be ideal since you’ll build positive credit history over time, assuming you make timely loan payments.

A CD loan is also a good option for individuals who want to pull funds from their CD without facing early withdrawal penalties. When you take out a CD loan, even though you’re not technically borrowing from your funds, you may be able to borrow up to the amount currently in your account.

Before committing to a CD loan, compare any fees to the CD’s early withdrawal penalty. If it would cost less to withdraw all the funds in your CD before it matures, a CD loan may not be the best option.

Who should avoid CD loans?

CD loans are an option if you don’t have a CD or for those who don’t qualify for any other type of borrowing. If you have an emergency fund, retirement accounts, taxable investment accounts, or even credit cards, you’ll want to consider those options before turning to a CD-backed loan.

How to apply for a CD loan

Applying for a CD loan is similar to applying for any other type of loan. Here are the basic steps:

  1. Check your credit: When you apply, your lender will likely perform a hard credit check. This allows them to check your credit report and see your borrowing history. Many lenders base most of the approval process on your credit health.
  2. Compare CD loan terms: Your rate and terms may be determined based on your credit score, but generally, you can’t borrow more than the amount you have in your CD. However, it doesn’t hurt to ask. Depending on your bank or lender, you may be able to choose from a selection of loan terms.
  3. Gather the required documents: You’ll need to provide your personal and financial information. Before starting the application process, have your ID, Social Security number (if applicable), proof of income and proof of employment. Every lender will request different information, but it’s good to be prepared and have the basics on hand.
  4. Complete your application: Most banks allow you to apply for a CD loan over the phone, online or at a branch. Once you’re approved, you could receive funds within a few days. Some lenders offer same-day funding, while others can take up to a week. Ensure you know the timeline beforehand, especially if you need the money quickly.

Alternatives to CD loans

If you don’t have a qualifying CD or can’t find an option that fits your needs, you could consider a few financing alternatives.

  • Unsecured loans: Unsecured loans don’t require collateral, so you’ll need good credit to qualify with most lenders, but there are options for those with low credit. However, unsecured loans typically carry higher rates than CD loans, but they’re still a good option if you don’t want to put your assets at risk.
  • Savings-secured loans: With a savings-secured loan, you pledge the funds from your savings account as collateral. Savings-secured loans often feature fixed-rate terms, enabling you to make the same monthly payment throughout the life of the loan. Since your own funds back the loan, banks often offer same-day approval. Like with a CD loan, if you default on the balance, you could use your hard-earned savings account to satisfy the delinquent payments.
  • Secured credit cards: A secured credit card offers benefits if you do not need a specific amount of money and simply need to build or repair your credit. Plus, with a positive repayment history, you may be able to qualify for an unsecured card down the road. To be eligible for most secured cards, you’ll need to put down a cash deposit. This deposit acts as collateral and your credit limit. For instance, if you deposit $1,000, that will be your collateral, and you can use the card to spend up to $1,000.

The bottom line

A CD loan could be viable if you have a CD and need cash quickly. It’s easily accessible, even for those with low or no credit, and can help improve your credit health if managed wisely. Plus, the funds in your CD will continue growing throughout the loan term.

But these loans aren’t without drawbacks, and the cost of borrowing could outweigh the benefits of taking out a loan, which means making early withdrawals from your CD may be the better option.

Consult with your online lender, bank or credit union to learn more about CD loan options that may be available to you. It’s equally important to inquire about loan terms to determine if you should move forward with applying for a loan or explore alternatives.

Frequently asked questions

  • Most online lenders, banks and credit unions that offer CDs have the capacity to offer CD-backed loans. If you think you’ll be taking one out in the future, review and compare multiple options to see if any institutions have restrictions on CD-backed loans before applying.
  • Your CD loan interest rate depends on the institution you’re borrowing from, your credit score, and your repayment terms. Interest rates vary, so comparing interest rates on CD loans and other borrowing options, like unsecured personal loans, credit cards and a credit card cash advance, is a good idea.
  • When you take out a CD loan, you may be able to borrow the full value of your CD. For example, if you have a $1,000 CD, you may be able to borrow up to $1,000, with your CD serving as collateral. However, when the account matures, you cannot cash it out and collect the funds until you’ve repaid the CD loan in full.