Nearly everyone into business and even individuals all needs to know How Do Credit Builder Loans Work. In today’s word, there are several important reasons why we may need a credit either to buy a car, condo, rent an apartment, increase business, etc.
Thankfully, there are thousands of lenders willing to work with prospective borrowers with or without the greatest of credit history. These lenders know that everyone has their ups and downs when it involves financial situations. With that in mind, they have created the credit builder loan.
Credit Builder Loans
A credit builder loan will help you rebuild your credit score by reporting your payments to the credit bureaus. So that over time your score will go up and you will be able to get more affordable loans.
What Is A Credit Builder Loan?
These loans are known by various names like starting-over loans, fresh start, etc. Regardless of the names, its main purpose is to help borrowers build their credit. A Credit Builder Loan is created with advantages of installment loans to help make fixed repayment and create positive credit history.
The main difference between an installment loan and credit builder loan is the time of loan disbursement. You won’t get the loan amount upfront with a credit builder loan. The purpose of this loan is to help build history of regular payment, so that applicants can get access to funds at end of loan term.
Features of Credit Builder Loans
- It is created to help people with poor or no credit
- When the loan is paid in full you can get access to the borrowed funds
- It offers affordable payments to make sure applicants pay on-time
- Some of the lenders refund the interest amounts when repaying the loan
Best credit Builder Loans
Credit builder loan is a good way to build credit and rebuild your credit. They can also be used as an alternative to checking your credit score, or even for free.
Credit builder loans are short-term loans that allow you to make small payments on top of one another each month. And this builds up the total amount owed over time. The borrower then pays them back at the end of their term with the interest charged. Some of the best credit builder loans are:
- Republic Bank
- Heartland Bank
- Self (Self Lender)
Credit Builder Loans Credit Union
Credit unions are not-for-profit financial institutions, owned by their members. They offer a wide range of services including loans, savings accounts and checking accounts to members of the credit union at no charge or at low cost.
Credit unions have strict eligibility requirements for membership, including income limits and employment history checks on new applicants.
Best Credit Union Credit Builder Loans
Credit builder loan interest rates vary based on your personal situation and how much money you want to borrow from a credit union’s branch location nearest you
- Metro Credit Union
- Digital Federal Credit Union
- USALLIANCE Financial Credit Union
How Credit Building Loans Work?
When planning on taking a credit-building loan, your main objective should be improving on your credit score or establishing a credit score. Below is a guide on the process of using credit-building loan to build credit:
Decide On A Lender
The first step is to pick a lender you will apply for this loan under. Selecting one won’t be difficult online as you can compare their loan terms given on their website pages.
The Loan Amount
You should next decide on the loan amount you want to apply for. It is generally in increments of $300 to $1000 as per the Consumer Financial Protection Bureau. Note that you won’t be granted access to the funds until you have fully paid the loan by the end of the given date.
The loan term is usually over 3 to 24 months. You should pay on-time monthly payment of the loan’s funds and interest until the loan is completely paid.
All the monthly repayments you make will be reported to all three major credit bureaus; Experian, TransUnion, and Equifax. And since it affects credit score, you will be able to see your credit improve just with this solid payment history.
Issuance of Funds
After the loan amount have been paid in full, then your lender will release the funds at the end of the loan term. The money might be deposited directly to your account, and you can then use it for whatever purpose you wish for.
Can You Get A Loan If You Have No Credit?
If you have no credit, it’s not the end of the world. You can still get a loan with bad or no credit and that’s something to be encouraged about.
How Can I Get A Credit-Builder Loan?
You can apply for the credit-builder loan at small financial institutions like local credit unions, community banks, and online lenders. The requirements are similar to most bad credit loans. Applicants don’t need a good credit score to qualify for this type of loan.
Requirements Of Credit Builder Loans
- Must be 18 years of age or older
- Submission of employment information
- Must have a Social Security Number (SSN)
- Submit proof of income like Paystubs or tax returns
- Must have balances in checking and savings account
- Should get references
Is A Credit Builder Loan A Good Idea?
This is a financial tool that can help you keep up with making on-time or regular payments. It also helps to increase your credit score with a good credit history. The payment history makes up to 35% of your credit score. So, with this loan you can improve on your payment history to build good credit. If you can make the on-time payments, then the credit building loan is a good option. You can get no improvement or hurt your credit even more if there is late or missed payments reported to credit bureaus.
Do You Get Money From A Credit Builder Loan?
A credit-builder loan is very different from the traditional loan. With the credit-builder loan, fixed payments are to be made to the lender and then get access to the loan amount at the end of loan term.