Credit Builder Loan
Do I Need a Credit Builder Loan? If you’ve had enough of a bad credit score and forever having lending applications denied, credit builder loans are right for you. They allow you to build your credit and prove your ability to meet payment arrangements that essentially come with a reward at the end: all the cash you’ve deposited.
There are plenty of sources you can turn to for taking out a credit builder loan and they don’t all have to be dealt with online. Keep reading to learn more about loans to help build credit.
How Does a Credit Builder Loan Work
The important thing to remember is that you won’t have access to the funds until the agreed date has been reached. This is usually somewhere between six and 24 months. Upon completion, the lender will return the money you’ve paid towards your loan and likely the interest you’ve paid on it too.
The other main benefit of these loans is that your performance will be reported to all relevant credit authorities and improve your credit score substantially. You likely won’t need to have a credit check either but taking out an installment loan for bad credit may require sharing banking history.
Taking out a credit builder loan might require some or all of the following:
- Employment details
- Tax returns for self-employed
- Housing contributions
- Balances for other loans
Just like with other loans, you should always pick the one that works for your budget. If money’s tight, there’s probably no benefit to taking out a 24-month credit builder loan. And if your chosen lender doesn’t return interest, you’ll have potentially wasted quite a bit of money.
Always be sure you understand the full terms of your agreement, including the length, monthly payments, and interest reimbursement.
Where to Get a Credit-Builder Loan
Online Lenders: Going online for a secured or unsecured credit builder loan will likely offer the most opportunities and require a lot less research. After all, you just need to find a reputable source for holding onto your money temporarily and one that can make contact with all relevant credit agencies.
Searching is a lot easier online since other people have already done most of the research for you. You’ll definitely have more luck finding the type of credit builder loan you’re looking for online than by reaching out to your local community bank, for example.
Credit Unions:
A credit union works differently to a bank in that it’s a peer-financed organization that supports existing and contributing members. If you’re a part of one in your state, a credit union can offer low-risk and desired interest rates as opposed to turning to aggressive, unfamiliar outlets.
Not that many people opt for banking and borrowing with credit unions but for those that do, they receive greater lending opportunities and have the peace of mind that comes with the principle of supporting your fellow union members.
Peer-to-Peer Lending Groups:
These lending groups are great for loans to help build credit. If you were taking out a personal loan, you’d likely endure quite a lot of pressure since missing payments requires other peers to make it up.
Members of the group will negotiate the terms of your loan, like the interest, repayment length, and acceptable borrowing amount, and a guarantee is made with a pledge from the whole group. If you’re a part of a peer-to-peer group, it’s highly convenient to take out your credit builder loan with them.
How Can a Credit-Builder Loan Help My Credit?
If you’ve got bad credit then credit builder loan companies can help, it’s as simple as that. Having poor or no credit history can be a thing of the past with a credit builder loan because they exist purely to bring financial balance. The money at the end of it is yours and you’ve also accrued some nice interest to go along with what amounts to your savings, essentially. Be sure to pick a loan that sees the interest returned to you as many will keep it.
Bottom Line
The type of loan you opt for is entirely up to you and dependent on your circumstances. Credit builder loans, while they work a lot differently to typical types of borrowing, like installment loans, are a proactive way to credit build and prove your stability to financial organizations across the US.
All the money at the end comes back to you and greatly increases your credit score and chances of securing important lending down the line, including mortgages, auto loans, and more.
