Banco Popular de Puerto Rico launched Thursday what may be a first for the island’s commercial banking sector: giving consumers the option to put their savings up as partial collateral when applying for a personal loan.
The flexible credit product allows applicants to cover between 25 percent and 99 percent of the loan with their savings, which the bank converts into a CD that earns interest over the term of the loan.
“Until now, there were only two extremes: unsecured loans and those whose balances are 100 percent guaranteed. This new tool expands our product portfolio, with the benefit that the price, or the interest rate for the partial guarantee loan, lies between these two extremes,” said Mardi Colón-Hernández, vice president of the bank’s individual credit division.
“We’re not establishing fixed percentages. We’re going to adjust to the customer’s reality,” she said, stressing that unlike secured loans issued by cooperatives — which are giving Popular a run for their money in this tough economy — the application is not conditional on the purchase of shares.
The higher the amount of savings used to guarantee the loan, the lower the interest rate will be, bank officials explained
“The price reduction comes because we are reducing the risk and we’re passing those savings to our customers. This gives a new value to the loans,” said Fabio García-Passalacqua, first vice president of Popular’s individual credit division, who led the bank’s market research efforts to create the new offering.
Upon analyzing the transformation of Puerto Rican savings habits, which García-Passalacqua said are improving “as people have learned to spend more wisely,” the bank opted to put out the partial guarantee option that also encourages savings.
The amount put up as collateral can also be used to repay the loan once the need for the money is over, he said.
“There’s a need, and this loan is intended to satisfy it. Perhaps someone has the need for $10,000, but has $4,000 saved. So far the client has been requesting a loan for the $6,000 difference. Now, they don’t have to withdraw that money, they can bring down the cost of the loan, and in the end, they keep what they have saved plus accrued interest,” he said.
Interest rates are calculated based on the client’s credit standing and repayment capacity, while the CD earns interest based on the prevailing rate.
Loans approved under the partial collateral program may range from $2,000 to $100,000, with a minimum collateral equal to 25 percent of the loan, bank officials said.