Loans secured by savings accounts - Posted by Chris O. (Seattle, WA)

Posted by Chris O. (Seattle, WA) on February 11, 2002 at 01:08:34:

Just FYI, here’s the scoup on the credit card:

The credit card was suppose to be a Student Visa card issued through Washington Mutual, the bank with whom I have my checking account, from Associates National Bank, which start with a credit line from $500 to a maximum of $2,500 (http://www.wamu.com/clending/creditCards.jsp). Instead, I was sent a Classic Washington Mutual Visa card because my student status was “unverifiable.” (I had not yet completed the enrollment process.) Washington Mutual’s web site does not list any specific information on this Classic, but from other sites, I’ve been able to figure out it’s around $12,000. Another Washing Mutual Visa first-time cardholder also reported having been issued a $500 limit without any security deposit (http://www.creditcardfreedom.com/reviews). The shortcoming the reviewer cited was not having their limited raised in 9 months. Probably a little badgering on their behalf would have gotten the job done. I’ll have to wait until tomorrow during business hours to actually find out the skinny. Or hey, perhaps tomorrows daily drowning of junk mail will contain an offer-opportunity all you long-time cardholders are undesirably berated by.

The risk/reward factor you bring up is an excellent point. The more I learn about real estate investment, the more exciting and rewarding it appears. In my question for getting daytrading startup funds through real estate, I hope to develop expertise-enough to do both. Cultivate a monthly cash flow large enough to quit my menial jobs and be able to walk away from some deals with five-figure checks to help daytrade. And it’s promising to hear that Seattle is a furtile market to begin in!

Thanks for your well-wishing and dialog. Later,
Chris

Loans secured by savings accounts - Posted by Chris O. (Seattle, WA)

Posted by Chris O. (Seattle, WA) on February 09, 2002 at 03:45:51:

The idea’s not a new one. You open a savings account at a smaller, local bank with a thousand bucks. A few weeks later, you take out a loan for a thousand bucks, then repay it an additional few weeks. Repeat a few times and hopefully the banker will eventually allow you to take out unsecured loans for increasingly larger sums.

Now here’re my questions. It’d be nice to hear from an actual lender from a financial institution, or someone who’s done this. Of course, I’ve never gotten a loan so these are probably pretty basic questions.

  1. How long’ll you have to wait before asking for the loan equal to the amount in your savings? Could you open a savings, make the deposit, and get the loan all in one meeting, all with having no prior relationship with the bank?

  2. What is a loan secured by your savings account called?

  3. Can I expect to get a loan for the full value of my savings account?

  4. The lending banker will surely want to know what the loan is for, right? Won’t they wonder why you don’t just use the thousand you put in the savings account? I’ve read that telling them you want to keep the savings account untouched because you want to sustain interest on it is the best answer. How could that be the case if the interest rate on the secure loan is higher than the interest you would receive on your savings?

  5. Are there banks that give interest on savings accounts every month?

  6. Should you make payments on the loan or should you pay it off all at once?

  7. How long should you wait before you pay off the loan? Could I pay it off a week later in full, or would that not “trick” the banker into thinking he had lended you a convention loan.

  8. At some point, isn’t the interest rate on the loan going to be way too much to continue doing this? I read that someone did this until they could get loans up to one million dollars.

Thanks a bunch.
Chris O.

Re: Loans secured by savings accounts - Posted by Ed Garcia

Posted by Ed Garcia on February 09, 2002 at 12:21:05:

Chris,

Let me cut to the chase with your questions.

  1. How long will you have to wait before asking for the loan equal to the amount in your savings? Could you open a savings, make the
    deposit, and get the loan all in one meeting, all with having no prior relationship with the bank?

ANSWER:

You can try to do anything, but my answer is NO. What do you think the loan officer of the bank is going to think about you if you tried such a maneuver? There going to be suspicious that you’re a flake. To satisfy their loan criteria, they may even run a credit check. In either event they’re not going to feel that you’re for real and are the kind of banking customer that they are looking for.

  1. What is a loan secured by your savings account called?

ANSWER:

A pass book account.

  1. Can I expect to get a loan for the full value of my savings account?

ANSWER:

This answer could depend on you and your relationship with your banker. First of all, the amount of money that you’ve used in your example is insignificant in the scheme of things. If your pursuing this to improve your credit, there are companies who do this very thing that you’re requesting. They Issue you a Visa or Master Charge for the amount of money that you have deposited with them. They’ll have your money and lend it back to you at a ridiculous rate. If you are doing this to build your relationship with the bank that your depositing your money into, then you will have to do this over a period of time.

  1. The lending banker will surely want to know what the loan is for, right? Won’t they wonder why you don’t just use the thousand you put
    in the savings account? I’ve read that telling them you want to keep the savings account untouched because you want to sustain interest on
    it is the best answer. How could that be the case if the interest rate on the secure loan is higher than the interest you would receive on your
    savings?

ANSWER:

Your answer is in your question, you’re right. For a person to go about it in this manner would be ridiculous. If you are trying to do this to re-establish your credit, then tell the banker. At least they will understand that answer and be willing to help you. But doing it in the manner that is being suggested in your post is insulting the banker’s intelligence and that’s not easy to do.

  1. Are there banks that give interest on savings accounts every month?

ANSWER:

YES

  1. Should you make payments on the loan or should you pay it off all at once?

ANSWER:

That would depend on the terms and conditions you have agreed on with the bank. It can be done either way.

  1. How long should you wait before you pay off the loan? Could I pay it off a week later in full, or would that not “trick” the banker into
    thinking he had lended you a convention loan.

ANSWER:

Trick the bank as you call it, is exactly what it looks like you’re trying to do. So I have good news for you, the way you’re going about it, the banker won’t be tricked. Either will his kids.

If you were to set up a passbook account to borrow against? The reason you’d be doing it would be to establish credit. You can’t establish credit in a week. You would have to leave the money in the account for at least 6 month in order to obtain a rating. Other wise you would be considered TNTR (To New To Rate).

  1. At some point, isn’t the interest rate on the loan going to be way too much to continue doing this? I read that someone did this until they
    could get loans up to one million dollars.

ANSWER:

Chris, the concept is workable. The approach is beyond amateurish. I’m sorry if I’m becoming a little insulting, but you really have to think out what you are doing and why you are doing it. If you goal was to accomplish establishing and build credit, then the cost of the differential of your passbook and loan against the passbook is part of the price you’re going to pay to accomplish your goal.

My suggestion is, rather than to try and trick the bankers, learn how to work with them.

Ed Garcia

Re: Loans secured by savings accounts - Posted by Chris O. (Seattle, WA)

Posted by Chris O. (Seattle, WA) on February 09, 2002 at 21:56:35:

Ed,

Great to see such a thorough response for such a silly post. It’s not so much that I’m trying to pull a fast one on the bank, which I am to a degree, as it is my naivety. The thing is, my experience in working with banks is calling the customer service line and reordering checks. Anyway, I took no offence at all and am glad to have heard from you.

Since my understanding of banking is so juvenile, how would you suggest I “learn how to work with them?” The obvious answer would be, “work with them!” But, I really have nothing to work with them on. Continuing to bother CREOnline’s financing forum with such basic questions is really a wasteful taxation to this great resource.

Here’s the real deal. For the past year, I’ve been daytrading using money from wealthy family members. They get their money back when they ask for it, plus 7% interest, and I keep whatever profits I’ve made trading. Very recently, I had to withdrawal nearly all these profits to pay for some circumstantial expenses including moving out into my own place, college tuition, and a medical situation. To top it off, I’m no longer in contact with any of these lending family members for personal reasons. (It’s tough starting your own life!)

I need to get back to daytrading. Right now, I’m exploring Real Estate flipping to amass a tidy fortune large enough to get back into daytrading seriously. My ultimate goal is to do both: investment real estate and stocks. Without a sizable cash lump sum in my brokerage account, like I had before, my day trading efforts are wasted yielding only pennies a trade.

That’s where this get-some-quick-cash-from-the-bank idea came into play. If I could get a few thousand dollars loaned to me, I would wire it to my brokerage account and begin making worth-while profits again. Obviously I can’t tell the banker I need a loan for a couple thousand bucks to daytrade when my checking account’s balance fluxuates between a few hundred dollars constantly. I’d get laughed at. So I need a solution to get cash on a short-term loan.

The best I’ve come up with so far is using my credit card, whose limit is a mere $500. On the first day of my billing cycle, I get a cash advance on the $500 for a 3% fee, deposit it in my checking account, then wire it to my brokerage account. In two days, that $500 is ready to be spent on trading. Three days before my billing cycle ends, I have my brokerage send me a check for $500, cash it into my checking account after it arrives, then pay the credit card off online using my checking account.

This worked well the first and only time I’ve done this. By the end of Jan., I made marginally over $80 using the $500 cash advance on my credit card, minus the $15 cost of the 3% free. Had I had $5,000 instead of $500 to trade with in my brokerage account, I’d probably have made $800 instead of $80. Without a higher limit, however, this is not possible. Sure, a year down the line, after I’ve had the credit card longer than three months, the limit will be higher, but, as the adage goes, time is money!

What would you suggest I do, now knowing my situation. How can I get substantial financing for such high-risk investing? Should I plod along as I am now with the credit card as my lender? What are my options as you see them?

Thanks a ton,
Chris.

Re: Loans secured by savings accounts - Posted by Ed Garcia

Posted by Ed Garcia on February 10, 2002 at 11:27:37:

Chris,

The thing that puzzles me is that you say that your credit card has a limit of $500. To my knowledge banks haven’t issued credit cards for less than a $1000 for years.

My cousin is in the credit card department of Bank of America based in Phoenix Arizona. She told me the first approvals aren’t even made by a human, but a computer instead.

That leads me to believe that your credit card is either like I suggested in my original post to you, where you put up the money to get it started, or a card is issued to you from your bank to handle over draws.

If not, then your first step is to go to the bank that issued you your credit card and have them raise your lending limit.

Chris, I must tell you that I can’t help you because day trading is not my thing. The reason I don’t play with it, is not just because of the risk, but because of there being too many variables and I really have no control.

The big difference is RISK/REWARD. In day trading you’re taking a higher risk with a questionable reward. In real-estate investing, you can learn the market, buy below market with built in PROFIT, and structure your deal with monthly CASH FLOW. In day trading it appears that you relay on chance, because of you’re unknowing of the market of the companies, or their activities such as Enron. In real-estate if you lose, in most cases it’s because of stupidity. Now of course there can be exceptions to that, but I’m talking about the rule, not the exception to the rule. The exception would be in dealing with commercial properties and experiencing vacancies or if you built a property on speculation, just to name a few.

By the way you’re from Seattle Washington where I just came back from spending 3 days looking at commercial properties. It’s an awesome real-estate market if you know what you’re doing.

Chris you sound like a young man who is looking for a way to make his mark. I wish you well and much success,

Ed Garcia

Re: Loans secured by savings accounts - Posted by Joe M.

Posted by Joe M. on February 18, 2002 at 03:57:58:

Ed, Would you mind Sharing more on your Seatle REI opinion. I’m thinking its a over priced in the center and the outlining areas might be best for sfh’s. Also I thought the Cap rates are pretty bad around here usually?I’d love to hear whatever thoughts you might have.