What is a credit builder loan? How does it work?

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Credit builder loans are small loans designed specifically for those who have poor credit or those who do not yet have credit at all. More importantly, credit builder loans are also meant to help create or improve bad credit, or, as the name implies, help build your credit. They are often offered at smaller, more modest amounts (usually between $500 and $1,500) to ensure that you demonstrate the ability to repay a loan.

Such loans are given with the understanding between the lender and the borrower that the borrowed money is to be deposited into what is essentially a savings account that cannot be accessed until the borrower has fully repaid the loan.

At the end of this agreement, if you make all your payments, the funds are released to you and you will have increased you credit score. In other words, you are paying for the money you need before you actually borrow it, and because you are successfully paying down this loan, you are creating positive credit information. It is also important during the duration of this loan that you maintain paying your other bills on time and avoid taking on any payday loans, increasing charges on credit cards and avoid NSF (Non Sufficient Funds) situations, i.e., bouncing payments.

As with any other loan, however, failing to make payments would be considered as negative credit information, which will bring down your credit score. And with a lower credit score, you are less likely to be able to secure another loan with other institutions.

Because credit builder loans are offered in smaller amounts, they are a great fit for those who have less financial freedom, particularly individuals who are waiting to be discharged from bankruptcy, consumer proposals or debt management programs.

This is a mutually beneficial agreement between the borrower and the lender in that credit builder loans are low risk for the lender. As well, once your credit improves, you can then also take out larger loans (such as mortgages) from the lender. Improved credit also means that you have a better chance for credit card and loan approvals, lower interest rates of credit cards, better car insurance rates, and even higher and easier approval for housing rentals.

ClimbLoans is here to help you get on a positive track to financial help. Beyond credit builder loans, our consultants can also help customize a plan specific to you to help you rebuild your credit to match your savings and future financial goals.

Learn more about how ClimbLoans can provide you with a credit builder loan by calling us at 1-844-500-9898

https://twocents.lifehacker.com/what-you-should-know-about-credit-builder-loans-1715867695
http://www.creditcards.com/credit-card-news/create-restore-credit-builder-loan-1270.php
https://www.nerdwallet.com/blog/finance/what-is-credit-builder-loan/
https://loanscanada.ca/credit/credit-rehabilitation-loan/

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