The goal of Credible Operations, Inc. (NMLS number 1681276, hereinafter “Credible”) is to give you the tools and confidence you need to improve your finances. We advertise products from partner lenders who insure our services, but all opinions are our own.
A credit builder loan, as the name suggests, is a financial product used to help someone establish or build credit.
Unlike traditional personal loans, credit builder loans are not always designed for people who need to borrow money for large or unexpected expenses. Rather, it makes it easier for borrowers to repair existing credit while building savings.
Here’s how credit builder loans work, how to get one and some alternatives to consider if you’re looking to build credit.
If you’re looking for a traditional personal loan, Credible makes it easy Check interest rates on pre-qualified personal loans From various lenders, all in one place.
In a standard personal loan, the lender provides money upfront and pays it back in a series of installments until the debt is paid off.
However, in a credit builder loan, the lender does not pay the upfront funds. Instead, the lender holds the money in a designated account (with or without interest) until the loan amount is repaid.
Credit builder loans work in reverse order to traditional loans.
- After getting approval for a credit builder loan, your lender deposits money I want to borrow from my bank account. The lender will not pay you this money.
- Then make monthly payments on the loan On schedule, like a personal loan, it usually takes 6-24 months. The difference, of course, is that you’re making monthly payments for money you don’t actually have on hand and haven’t touched yet.
- If you pay monthly, Your lender reports your payment To a credit bureau. You can choose to report to one, two or all three agencies including Equifax, Experian and TransUnion.
- Making payments on time helps establish your credit history (if you have little or no credit) or increase your existing score.
These reported payments not only help build the payment history portion of your credit report, but they also help improve your account’s average age and credit mix. improve credit score with time.
Once the loan has been repaid, the lender will provide the amount held in the credit builder account. You can then use that money as an emergency savings account, use it to pay off your credit cards, or cover large or unexpected expenses.
Credible does not offer credit builder loans.But you can access Credible Compare personal loan interest rates From a variety of lenders without impacting your credit score.
If you are interested in applying for a credit builder loan, please follow these 4 steps:
- Find lenders that offer credit builder loans. Compare credit builder loans from at least a few different lenders. Look at the loan amounts, interest rates and repayment terms they offer. This will help you find the most cost-effective loan that suits your needs.
- Make sure you meet the eligibility requirements. Qualifying for a credit builder loan is usually easier than taking out a standard personal loan. Lenders can reduce their risk by holding onto the amount they borrow. However, you may have to meet certain requirements related to age, income, citizenship and residence. If the loan is provided by a credit union, you may also need to become a member to get the loan.
- apply for a loan Once you’ve found a competitive credit builder loan product that meets your needs, apply. You may be required to submit additional documents to verify your identity and income.
- Start paying. Once the loan is finalized, we start making payments to the lender as agreed. Once the loan repayment period is over, you can receive the funds.
The cost of a credit builder loan comes down to interest and time.
These loans, such as personal loans, car loans, and student loans, come with interest rates. This is the lender’s fee for lending you this money, expressed as a percentage. Credit builder loans are less risky for the lender than immediate payment loans, so they often have lower interest rates. This will save you money during the loan term.
However, time can be a bigger cost for some borrowers. Credit builder loans aren’t paid until the debt is paid off, so you end up paying the balance of the loan that you haven’t actually received. If you need the money to pay off other debts, pay off a large expense, or build an emergency savings account, you may have to wait up to 24 months before you can access it. it won’t work.
As with all credit products, credit builder loans have both advantages and disadvantages.Whether you’re trying to build a credit history that doesn’t exist or recovering from one 500 credit scorethese loans are useful, but they may not be suitable for everyone.
if you are looking for build trust But if you’re unsure if a credit builder loan will meet your needs, there are some alternatives to consider.
- Secured Personal Loans — These loans provide an upfront payment of funds, but also provide an asset as collateral to secure the liability, such as car ownership or home equity. This collateral reduces the lender’s risk and may make it easier for low-credit and low-credit borrowers to qualify. However, if you fall behind on your loan payments, the lender can take your collateral.
- secure credit card — These minimum credit cards allow you to build your credit history. A deposit must be paid to get the card, and the credit limit is usually the same as the deposit amount. However, if you make timely payments for a period of time, we may be able to convert your secure card account into a traditional credit card product.
- Become an authorized user with a credit card — A parent, spouse, sibling, or friend with good credit can add you as an authorized user to an existing credit card account. In many cases, the user’s own accounther activity is reported to the credit, helping to establish or repair the credit score without spending money.
If you’re interested in a secured personal loan or want to co-sign a loan, Credible can help you quickly and easily. Compare personal loan interest rates to find one that fits your needs.