These loans encourage you to save money while building credit since you end up with a nest egg in your bank account at the end once you’ve paid back the loan amount and get access to your borrowed funds. These types of loans are usually for very small amounts, and the loan rate is often higher.īecause you pay back the loan before you gain access to the money - or because your loan is secured by cash in your savings account - there’s no risk to the lender giving you a credit builder loan. In rare cases, you can also get a loan and access the funds right away, without putting money into an account that serves as collateral. In other cases, you’ll be given the borrowed funds right away - but need to have the borrowed amount of money invested in a savings account that serves as a security deposit for the credit builder loan. Once you’ve paid back the entire borrowed amount, you’ll be given the funds that the lender deposited into your savings account. You’ll make monthly payments based on your interest rate and amount borrowed, and the lender will report your monthly payments to the three credit bureaus - Equifax, Experian, and TransUnion. The money you borrow is put into a savings account for you. In most cases, when you take out a credit builder loan, you borrow between $300 and $1,000 - but the catch is that you don’t actually get access to the funds until you’ve already paid the full loan amount back.
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