3 Ways to Get a Credit Builder Loan

Finding a lender that offers credit builder loans can be a task within itself.  These loans are unlike popular lending options such as home loans or auto loans, and therefore you can’t find them at every bank or financial institution.

Two places where you can get a credit builder loan include a community bank or local credit union. Credit unions will usually have membership requirements such as you will need to live in the local area or work for a specific company. 

Other regulations may also apply. But most people who apply for a membership tend to meet all requirements, so you shouldn’t let that stop you from becoming a credit union member. They are a good option because they often offer some of the lowest interest rates on their loans.

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If you are unable to get a credit builder loan from a community bank or a credit union, your next best option would be to try a CDFI or Community Development Financial Institution if there is one available to you.

These organizations help low-income communities grow and prosper by investing in businesses that will contribute back to the community. There are just around 1,000 CDFIs throughout the United States.

So there aren’t many around, but if you have one nearby, it would be worth your while to look into getting a loan from them

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​Online lenders offer loans with payments that start at a very low payback rate. You can get loans for as little as $25 a month for a two-year loan. The interest rates are also below average at around 16%. Plus, all your payments are reported back to the three major credit bureaus.

It is one of the best options that you have for a simple and easy credit building loan. And there are plenty of lenders out there ready and willing to provide you with the opportunity to build your credit from the ground up or assist you with rebuilding your poor credit.

Another practice that is gaining recognition in the area of credit building loans is lending circles. This can be used among family and friends and is often overseen by a lending program.

They are offered through nonprofit organizations such as the Mission Asset Fund. Those who take part in this type of credit building loan have access to interest-free social loans and their payments are reported back to the major credit bureaus.

With a lending circle loan, there are around 10 people who agree to add in a certain amount of money every month. And that money goes to one person, then the next every month until each person has received their share of the money.

This type of loan is not available in all areas so you will need to do a little searching to find out if there is one offered locally to you.

You can visit LendingCircles.com to learn more about them and find out if this type of loan is offered in your community.

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When you are looking for a credit builder loan, you should try to find one that has payment terms you are comfortable with. You want to be sure that you can pay the required amount back as needed. Generally, there is no need to make additional or higher payments just to impress the lenders.

Most people are able to find a low payment credit builder loan and pay it back in full in less than 2 years.

Once you have found a credit builder loan you are happy with,  it is time to apply for a loan. Once you are approved, the money that you borrow is then deposited into a savings account that you will not be able to access until you have repaid the loan in full.

This works as a safety net for the lender who is taking on the risk and can provide them with protection if you have bad credit.

If you can make payments on time and pay the loan off as agreed, the borrower will send a good report to your credit bureau. However, if you make late payments, the borrower could end up sending this information to the three credit bureaus as well, and that information could do serious damage to your credit.

So keep in mind that while it may be considered a practice loan or a “loan with training wheels,” a credit builder loan is still a loan and one that will have either a positive or negative impact on your credit.

There are several free resources out there that can help you keep track of your credit score easily. Apps and websites such as Credit Karma, NerdWallet, or Credit Sesame can offer ways for you to check your credit score and credit rating for free.

They can also provide you with helpful advice on how to maintain your good credit over time.

Once the loan term has ended and you have paid off the loan, it is time to collect your funds plus any interest that your money may have accumulated over time.