Credit-Builder Loans

Credit-builder loans are loans for people who don’t need to borrow money but want to establish or reestablish a history of timely payments and thus improve their credit. With a credit-builder loan, a financial institution puts money into a savings account (usually $300 to $1,000). Then, the borrower pays this amount to the lender, plus interest at an APR of 6% to 16%, over 6 to 24 months. The lender reports payments to the credit bureaus each month, which helps to build the borrower’s credit history. At the end, the borrower gets access to the savings account with their funds.

Essentially, credit-builder loans work in the reverse of a normal loan. Instead of getting money and then paying it back in installments, the borrower pays money in installments and then gets a lump sum at the end.