Are you rebuilding your credit or building one for the first time? If yes is your answer, then you should consider a credit-builder loan. A credit-builder loan is a type of loan that helps the borrower build their credit score. What’s more, credit-builder loans are very different from traditional loans.
When you apply for this type of loan, you get to make fixed payments and access any loan amount at the end of the term from a lender. Instead of paying back over time or upfront, you get to make an unchanging payment to the creditor. Additionally, this type of loan helps borrowers make logical, on-time payments.
How Does it Work?
As we all know, traditional loans come with different repayment terms and loan amounts. What’s more, when you get approved for this loan type, the lender will give you a lump sum. After your loan has been handed out, you will start paying it back with interest in monthly installments.
However, a credit-builder loan is the exact opposite. So, for this type of loan, the creditor puts your loan into a savings account that is locked, and after you pay monthly, your money will be available. Moreover, some lenders give out small bits of your loan on every payment you make.
Besides, credit-builder loans have few options, unlike normal loans. The loan amounts are normally within the range of $300 to $1,000, and they usually have 6 to 24 months for repayment terms. In addition, a credit-builder loan is low-risk, and lenders do not normally get worked up when they give this type of loan.
How Can Credit Builder Loans Help You Build Your Credit?
Understanding how a credit-builder loan works and how it builds your credit score is very easy. Firstly, if you are building your credit score from scratch or rebuilding it, this will help you with on-time payments. In other words, it is helpful for consistency. What’s more, since payment history is important, this loan type helps you build it.
Credit Builder Loan Requirements
The requirements needed to apply for are not complex. Normally, you will be asked to provide some personal information. There is a probability that you will need to provide proof of income and your employment information. Your savings and checking account balances and loan balances will be asked for as well.
Is it a Good Idea?
The decision on whether or not a credit builder loan is a good idea all depends on your financial situation. Furthermore, this type of loan is beneficial to people who do not have a current debt or do not have a credit score. Nevertheless, if you do not want to use credit-builder loans to build your credit, you can check out effective alternatives to this process.
How To Get a Credit Builder Loan
If you have given it some thought and you feel like a credit builder loan is a good fit, here are the steps you need to begin the process:
- Find lenders that provide credit-builder loans.
- Determine the amount you wish to borrow.
- Shop for suitable terms.
- Submit your application.
- Begin making payments.
Find lenders that provide Credit-Builder Loans
The first step to getting or applying for a credit builder loan is to find a lender that offers such services. Best of all, you can search for these lenders online or in your community. In addition, you can reach out to a credit union or a local bank.
Determine the amount you wish to Borrow
Just like when you are applying for a traditional loan, you must consider and find out how much you want to borrow. The same goes for credit-builder loans. This will help you choose a suitable amount and not excess.
Shop for Suitable Terms
There are a lot of credit-builder loan providers online and physically. However, not all of them offer affordable rates or the best terms for you. This is why you must shop around to find a good lender with the best terms for you.
Submit your Application
Once you have all of the following, you can proceed and begin your application process. Moreover, you need to provide all the necessary information and then submit it.
Begin making Payments
After your credit builder loan has been approved, ensure that you find out when your first payment will be due and start making payments before that day comes.
Best Credit Builder Loans
There are some effective alternatives to collecting a credit-builder loan. Nevertheless, if you are still interested in applying for this type of loan, there are some amazing lenders that you can certainly use to apply for and get a credit-builder loan. Some of them include:
- FreeKick Credit Builder.
- Fizz Credit Builder.
- CreditStrong Instal Account.
- Self-Credit Builder Account.
- Digital Federal Credit Union.
- Credit Karma.
So, you can compare the loan terms and conditions of these companies to find out if you are eligible for their loan. If you are, you can visit their official website to begin the application process.