Definition of Passbook loan’
A passbook loan is a personal loan for a savings account holder by the Bank-custodian, which uses the balance of the Savings account as collateral.
Breaking down the ‘Passbook loan’
The loan passbook, the holder of a savings account continues to earn interest on Savings account, including the amounts. As the loan is paid off, the account holder accesses those funds. Conditions vary considerably, with some lenders loan only as much as 50% of savings accounts and others are willing to lend up to 100%.
Passbook loans are considered low risk operation for the lender in connection with the availability of collateral. The borrower must send the passbook to the Bank to repay the loan. The Bank may block the funds on the savings account to the loan amount.