It takes a year to rebuild credit history once it takes a hit because of a financial crisis. You need to put some extra efforts to show your credibility as a borrower. However, there are some ways to improve credit history in a relatively shorter time.
Credit builder loan is an option for the people who want to build a good credit history from scratch. You take a loan from banks, private lenders, and other financial institution and make payments on time. The loan is designed to boost your credit ratings, not to provide you with additional funds.
Here, we will discuss the credit builder loan in detail and whether it is helpful in your situation.
What is a Credit Builder Loan?
Credit builder loan is a financial service offered by various institutions to help customers improve their credit history. In most cases, the borrower receives loan amount once it has been paid through instalments. These are small-term loans that last a few months or a couple of years.
Smaller institutions such as local banks, private lenders, and credit unions offer a credit builder loan. They don’t check the credit score while availing the loan to you. Therefore, the loan will be provided regardless of your credit history.
Even though the loan amount is not provided to you, the lenders charge an interest rate. This may sound unreasonable but it is essential to improve your credit history. You should ask the lender for some discount or refund at the end of the loan term.
When to Take a Credit Builder Loan?
You should apply for a credit builder loan to –
Rebuild Credit History
Credit builder loan is a great help after a financial crisis that has left you with a damaged credit history. You can rebuild the credit ratings by making payments on time for the next few months or years. It will improve gradually if no payments are missed.
There are many consequences of bad credit history on your personal and professional life. You will find yourself at the end of the priority list of the lenders to consider your loan application. Many employers these days check the credit ratings of the applicants to assess their financial decision making.
Alternative of Credit Cards
Some people use credit cards to increase their credit ratings over time. However, the excess use of cards could display credit history as desperate borrowers. Also, the interest rates are exorbitant when compared to traditional loans or credit builder loan.
Some people find it intimidating to manage too many cards at once. They need a simple alternative that involves a single payment every month. However, you can get 24 hours loans in Ireland with a private lender at much lower interest rates.
Get Better Interest Rates
Your long-term goals, such as home or luxurious cars, require a mortgage that lasts years. The credit history is an essential factor for the lenders to decide the interest rates for your profile. The impact on the overall cost of the loan is enormous if a few decimal points increase the rates.
A credit builder loan at the right time will improve the credit history to improve your profile. The lenders will have better offer with lower interest rates and flexible term. In the end, you will save some serious money on the total interest paid for the mortgage.
What Are the Types of Credit Builder Loan?
There are three main types of credit builder loan, Pure, Secured, and Unsecured CBL. Based on your requirement, you can apply for the loans from the institutions that provide them. Here are the significant differences between the three types of CBL.
Pure Credit Builder Loan
The loan amount is transferred by the bank in a locked amount in Pure CBL. You have to make the payments to access the loan amount at the end of the term. It is recommended when you don’t have enough money to pay upfront.
You have to pay the money up front to the lender to avail a secured loan. You will have an emergency fund to rely on until the money is paid. Moreover, the interest rates will be lower for the secured loan compared to the other alternatives.
Similar to a personal loan, unsecured loan provides you money as the loan amount. The interest rates are higher because of the increased risk associated with it.
Alternatives to the Credit Builder Loan
Credit builder loan is an intuitive solution to rebuild credit history at a faster rate. However, the interest rates seem unreasonable since you don’t borrow money from the lenders. Here are some alternatives to the credit builder loan if you want don’t want to pay interest for money have already saved –
Secured Credit Card
A secured credit card is provided by the lenders after the borrower secure the limit with an amount. People with a bad credit history can avail a line of credit by this service. Make sure the card issuer reports the activity to the credit bureau to improve the credit history.
Ask for Help
Your family and friends can help you with borrowing and credit improvement through various means. You can become an authorised user in their credit card to get benefits of timely payments. Also, co-signing will ensure the interest rates are lower because of their perfect credit history.
Take Another Loan
Private lenders in Ireland offer online loans to borrowers with a bad credit history. You need to have a regular income or repayment plan to avail the loan. However, you should not miss the payments again to damage credit history even more.
To sup up, credit builder loan is a great option to improve your credit history. It will help you in the future endeavours if you ever want a loan. However, there are cheaper alternatives available where you don’t have to pay interest rates without even receiving the funds.