What Is A Credit Builder Loan
Need to work on your credit? If you do then this post may be able to help you out. So, keep reading to find out what is a credit builder loan and how they can help you reach your credit goals.
Maybe you haven’t even established any credit yet?
Sometimes building credit can feel like trying to break into a new career–you’ve got to have the experience to get the gig, but you can’t get the gig without experience.
Thankfully, there are more than a few options out there for building and improving your credit.
One option is with a credit builder loan.
How a Credit Builder Loan Works
Credit builder loans come in a couple different flavors, all designed with building credit in mind.
Keep in mind that, since these loan products are for borrowers with low or no credit, the loan amounts will not be particularly large. Most will be in the $500 to $1000 range at most.
A True Credit Builder Loan
With this type of loan, the bank puts up the money by placing it in a savings account of sorts. You then make payments on the money.
With this type of loan, you will receive cash up front to use as you see fit. The interest rate will likely be higher, but you’ll have an opportunity to establish credit by making timely payments
This type of credit building loan is secured by the money you already have in savings at the bank. You essentially make payments until the loan pays in full to get access to the money.
It sounds odd but could be your best option for building or establishing credit.
Where Can I Get a Credit Building Loan?
Your best bet is to check with your bank or a local credit union. They’ll explain what is a credit builder loan and give you all the necessary information to find out if you qualify.
Many banks and credit unions offer credit-building loans but usually don’t advertise them widely. This is just one of those situations where you’ll have to ask.
A number of non-profits also offer credit building loan programs at the state level.
Before You Sign on the Dotted Line
Debt is often easy to get into but can be quite difficult to get out of. After all, the average American wouldn’t have nearly $10,000 in credit card debt if a debt was easy to pay off quickly.
Just make sure you know the terms and what you’ll be responsible for.
Putting It All Together
Whether you’re young and without credit or have made a few mistakes that need to be cleared up, a credit building loan may help.
There are lots of options out there with these types of loans, just remember that you’ll probably need to ask. And don’t forget to do your homework and understand what you’re getting yourself into.
If you’re working on your credit, be sure to check out some of our other credit building resources.
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