Trying to get a loan can be extremely difficult if you have poor credit or no credit. It’s kind of a paradox.
You need some credit to get access to the things that will give you credit in the first place. This can be pretty frustrating if you’re getting denied for loans that you need to improve your life. Luckily, there are some things in place that will help you out.
One of these things is a credit builder loan, which serves as a way for you to reliably build your credit with little to no risk. Once you’re on the path to good credit, you can start to get credit cards, loans, and more financial opportunities.
But how do these loans work, and are they the right fit for you?
What is a Credit Builder Loan?
We’ll lay out the general idea of these loans and try and do justice to explaining how important they can be for building credit.
A credit builder loan allows a person to take out a loan, but essentially prevents them from being late on payments by holding the amount of the loan in an account until it is fully repaid. Interest still accrues, but the rates are typically very low and manageable.
Why Would I Want a Loan That I Can’t Have?
What’s nice about credit builders is that they are immediately hidden from you, and you don’t really have to do anything to be pre-approved. It’s almost like they are taking a small amount of money from your future and using it to help you get good credit.
You take out the loan, make monthly payments until it is paid off, then you receive the amount of the loan. It’s the same concept as putting money away into a savings account in the sense that you are using money monthly that adds up and is able to use in the future.
The advantage over simply saving your money, though, is that these loans boost your credit score up to 100 points in a lot of cases. The average amount of credit boost is typically somewhere from 25 to 50 points. This may seem like a relatively small amount, but any amount of credit boost can improve your chances of getting a loan, credit card, or mortgage.
Additionally, you’ll be able to have a nest egg in the amount of the loan by the time you finish paying it off. It’s pretty nice, because you might not otherwise have a reason to save that much money. Sure, you’ll be paying monthly interest on the loan, but you can consider those payments that will go toward improving your credit score.
Are You Looking For a Loan?
Credit builder loans can be essential for people looking to be qualified for a loan. If you feel as though it’s time for you to receive a loan, or you’re in need of money as fast as possible, we may be able to help.
Little Loans has helped over 100,000 people in South Africa, so contact us and we can help you whenever you need.