Is An Unsecured Credit Builder Loan Right for You?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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You’ve heard about credit builder loans and wonder if they could possibly work for you. It depends on what’s in your credit profile, but many have had success with credit builder loans. Before you sign up, it’s ideal to understand how they work and where you can find the best options for your financial situation. You should also understand the difference between unsecured and secured credit builder loans. 

Build Credit and Savings with Self

Self, also known as Self Lender, offers an easy way to build your credit scores with a credit builder loan and credit card.

What is an Unsecured Loan?

An unsecured loan is a debt product that doesn’t require collateral to get approved. This means you won’t have to secure the loan with an asset, like your car, home, or boat. And the lender can’t go after your assets if you default on a loan. 

The lender focuses on your income, debt load, and credit history to make a lending decision. Expect to pay between 6 percent and 36 percent in interest, depending on your credit score. Some lenders also charge origination fees to cover loan processing costs. 

When the loan is approved and finalized, you can use the proceeds however you’d like. 

Quick note: You could be subject to prepayment penalties if you pay the loan off early.

What Is a Credit Builder Loan?

A credit builder loan caters to individuals who have poor credit and want to improve their credit health. Good or excellent credit isn’t needed to qualify, and you could get a loan even if you have little or no credit history. 

If approved, you won’t get the loan proceeds right away. Instead, the funds will be placed in a savings account or Certificate of Deposit (CD), and you’ll make monthly payments for the duration of the loan term. When you make the final payment, the lender will release the funds to you (minus any applicable interest and fees). 

Wondering if a credit builder loan is a good fit. It depends on your credit goals, but they offer several perks: 

  • Save money while building credit: When you pay the loan off, you can use the proceeds you receive to start or boost your emergency fund. 
  • No hard credit checks: You could get approved for a credit builder loan, even if you have little or no credit history. Consumers with bad credit could also be eligible for a loan. 
  • Low monthly payments: Depending on the product you select, you could choose your monthly payment to ensure it works for your budget. 
  • Reports to the credit bureaus: Timely payments mean good news for your payment history and overall credit health. 
  • Affordable one-time administrative fee: Most lenders charge administrative fees to open credit builder accounts, but they’re a small fraction of what you’d pay in loan origination fees for unsecured products. 
  • Competitive interest rates: You’ll pay interest on your credit builder loan, but it will likely be lower than the APR you’d have for an unsecured credit card because there’s less risk for the lender. 

Build Credit and Savings with Self

Self, also known as Self Lender, offers an easy way to build your credit scores with a credit builder loan and credit card.

Should You Get an Unsecured Credit Builder Loan?

Generally, you’ll find that most credit builder loans are secured by cash in a savings account or CD. But there are unsecured credit builder loans that allow you to access loan proceeds right away. 

The loans are enticing because they also allow you to build credit over time. However, they generally start with a small credit limit that could increase as you make timely payments. Also, you forfeit the opportunity to save money while making monthly payments. When the loan is paid in full, there won’t be a pool of cash or CD for the lender to release to you. 

How a Credit Builder Loan Helps Build Credit

Lenders report payment activity for your credit builder loan to the three major credit bureaus to be added to credit reports – Experian, TransUnion, and Equifax. Payment history accounts for 35 percent of your credit score, so each timely payment helps build your credit history and could improve your score over time. 

Where to Get an Unsecured Credit Builder Loan

It’s possible to get an unsecured credit builder loan that gives you access to cash right away. But a credit builder loan from a company like Self should be considered as you’ll build savings while building credit. 

In fact, Self offers four credit builder accounts to choose from, and you’ll only pay a $9 administrative fee when you sign up. You’ll make monthly payments for a set period while the loan proceeds are held in a CD. The funds (minus interest and fees) are yours to keep when the loan is paid off. 

Here’s a breakdown of your options at the time of writing (visit Self’s website for the most up to date information on their plans and pricing) 

  • Small Builder: Pay $25 per month for 24 months and receive $520 back. The annual percentage rate is 15.92 percent, and the total cost of the loan is $89. 
  • Medium Builder: Pay $35 per month for 24 months and receive $724 back. The annual percentage rate is 15.97 percent, and the total cost of the loan is $125.
  • Large Builder: Pay $48 per month for 12 months and receive $539 back. The annual percentage rate is 15.65 percent, and the total cost of the loan is $46. 
  • X-Large Builder: Pay $150 per month for 12 months and receive $1,663. The annual percentage rate is 15.91 percent, and the total cost of the loan is $146.

If you’ve wanted a credit card for some time but can’t get approved, you could also be in luck. When you open a Self credit builder account, make at least three on-time monthly payments and reach at least $100 in savings, you may qualify for a Self Visa Credit Card. Visit the Self website to review and understand all the eligibility requirements for the Self Visa Credit Card.

It is backed by a portion of your savings balance and can be used anywhere Visa is accepted. Even better, you could get credit limit increases over time with responsible use and possibly upgrade to a partially unsecured credit card. 

Join over 2.5 million users who have used Self to build credit by signing up today. It only takes a few minutes, and you’ll be on your way to building credit while building savings.

Self

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