Passbook Loan


DEFINITION of 'Passbook Loan'

A personal loan extended to a savings-account holder by the custodial bank. Passbook loans use the balance of the savings account as collateral for the loan. The amount of the loan therefore cannot exceed the savings-account balance.

BREAKING DOWN 'Passbook Loan'

Passbook loans are considered low-risk transactions due to the accessibility of their collateral to the lender. The borrower must hand over the passbook to the bank until the loan is repaid. The bank can also simply place a hold on the funds in the savings account up to the amount of the loan.

  1. Check

    A written, dated and signed instrument that contains an unconditional ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Savings Account

    A deposit account held at a bank or other financial institution ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Bank

    A financial institution licensed as a receiver of deposits. There ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
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