Beginning your credit journey isnâ€™t always simple. To open credit products, you often need an already established credit history â€” making it hard for credit newbies to obtain credit. But, there are companies like Self Lender that are dedicated to helping people who may struggle to otherwise get access to credit.Â Self Lender helps people build credit through their credit builder accounts. A credit builder account is a CD-secured loan, and in the case of Self Lender, itâ€™s FDIC-insured. By making on-time payments towards your loan, you can build credit during the term.
That being said, however, credit builder loans arenâ€™t free andÂ Self Lender is no exception. Self Lender has several credit building loans available, and in this post weâ€™ll discuss the fees and the pros and cons associated with each, as well as alternatives for building credit.
Deposit funds. A credit builder loan is different than a typical loan, where youâ€™re given money by a bank and you repay it over time. With a credit builder loan, you give the lender a deposit upfront and they put that money into a CD account. Then, they issue you a loan for the same amount of your deposit and you make payments on that â€śloanâ€ť each month. The CD acts as collateral.
Choose your loan amount and term. Self Lender offers credit builder loans with terms of 12 or 24 months and four different amounts â€” $525, $545, $1,000 or $1,700. During the term, you make fixed monthly payments which include applicable interest charges. Self Lender doesnâ€™t require any kind of credit check because, in reality, the company isnâ€™t taking any risk. If you donâ€™t make a payment, they will simply keep your original deposit and all the interest and fees youâ€™ve paid so far.
Payments get reported to credit bureaus. Each month, the payments you make on your â€śloanâ€ť are reported to the three credit bureaus â€” TransUnion, Equifax, and Experian. As long as you pay on time, good credit behavior will be reported, helping you build credit.
Pay off your loan, and recoup your deposit. You receive the money that was put in the CD, plus any interest you accrued, either at the end of your term or when you successfully pay your loan in full. But donâ€™t get too excited about the interest you earn â€” itâ€™s a meager 0.10% APY and wonâ€™t be enough to make up for the money spent on fees and the interest.
While this is called a credit builder loan, it isnâ€™t a loan in the traditional sense. With a typical loan, youâ€™d go to a bank or apply online and the bank would check your credit report to see if you qualify for the loan amount you requested. You would not need to deposit any money to receive your loan.
With Self Lenderâ€™s credit builder loan, you apply online for one of four loan amounts â€” $525, $545, $1,000 or $1,700 â€” and are required to deposit that amount into a CD. That deposit then becomes your â€śloanâ€ť amount, which you repay over the term of your loan.
Of course, the loan doesnâ€™t come without cost. Letâ€™s explore some of the fees and fine print next.
|Loan terms||12 or 24 months|
|Administrative fee||$9 to $15|
|APR||12.03% to 15.65% APR|
|Late fee||$1.25 to $7.50|
A credit builder loan from Self Lender comes with several fees and terms you should beware of prior to opening a loan. These terms are fairly similar to those of regular loans, but differ compared to other credit products that you may be more familiar with, such as credit cards.
Administrative fee: This nonrefundable fee is charged upfront, and the amount depends on the loan term. This is similar to a loan origination fee that typical loans often charge.
Interest and your monthly payment: Self Lender charges an APR of 12.03% to 15.65% that varies depending on the size of the loan you take out. Unlike a credit card that charges an APR on balances that remain after the statement due date, this APR is automatically factored into your monthly payment. Self Lender only offers four loan amount choices and each comes with a set monthly payment of $25, $48, $89, or $150. That monthly payment is comprised of both interest charges and payment towards your loan amount. As a result, the interest charges that are included in your monthly payment act as an effective monthly fee.Â
Late fees: If your payment is more than 15 days late, youâ€™ll incur a late payment fee between $1.25 and $7.50, depending on the amount of your loan. This can add up if youâ€™re late more than once.
Hereâ€™s a breakdown of the fees and terms associated with each credit builder loan offered by Self Lender:
|Loan amount||Monthly payment||Term||Admin. fee||Total cost*|
Terms and rates current as of August 8, 2018.
*The costs listed above are for borrowers who successfully pay on time during the course of their term. If you pay late, late fees will increase the total cost.
Overall, with net costs ranging from $46 to $112, a credit builder loan from Self Lender is a fairly low-cost way to help you establish or improve your credit over 12 or 24 months. If you want the least expensive loan, we recommend the $545 credit builder loan with a net cost of $46 after 12 months.
You can improve your credit score. A credit builder loan is designed to help you build credit, and to make the loan truly effective, you have to do more than simply take it out. Itâ€™s important to note that payment history is the most important part of your credit score at 35% â€” plus, having a loan as part of your credit history also helps your credit mix, a factor that makes up 10% of your credit score. Paying on-time and within the terms of your loan allows positive payment history to be reported to the credit bureaus.
Credit monitoring. Self Lender provides credit monitoring and score tracking services for free. This is something thatâ€™s become commonplace for financial products, with numerous banks and services offering free credit score access. If you decide to take out a credit building loan, itâ€™s convenient that you donâ€™t have to go to another site to access your credit score.
The cash you receive at the end of your term. When your loan term is complete and you successfully paid all the money back, you receive the money that was initially deposited into a CD â€” the amount you receive ranges from $525 to $1,700, plus any interest you accrued, depending on the loan you took out. (As an alternative, you can receive a lump sum of money with a traditional CD or by making scheduled payments to your savings account; however, neither of those options will help you build credit. Compare CD rates and savings accounts.)
The cost. Taking out a credit builder loan isnâ€™t free. Youâ€™ll have to pay a non-refundable administrative fee that ranges from $9 to $15, then youâ€™ll also have to make fixed monthly payments, which include interest charges. When all is said and done, the loan can cost you $46 to $112 â€” and thatâ€™s if you make timely payments. There are cost-free alternatives to credit builder loans, which we will describe at the end of this review. But if your credit is poor and other options are more expensive, it can be a solid bet if used wisely.
Open a secured credit card. Secured cards are a great way to build credit and can be fee-free when used responsibly. For the most part, a secured card is the same as a typical, unsecured card â€” but youâ€™re required to make a minimum security deposit to access a credit line. The deposit is normally $200 and youâ€™ll typically receive a credit limit equal to your deposit. While it may be inconvenient to deposit money to access your card, your deposit is refundable if you pay your account in full and close it or if youâ€™re transitioned to an unsecured card.
A secured card can also help you familiarize yourself with credit cards in general, and itâ€™s a great way to practice responsible credit behavior like making timely payments. Plus, if you want a potentially fee-free way to build credit, there are secured cards with no annual fee â€” just be sure to use your card properly so you avoid interest and late fees.
Â Become an authorized user on someone elseâ€™s credit card account. If you have trouble opening a secured card or donâ€™t want to take on the responsibility of opening your own credit card, becoming an authorized user on a family memberâ€™s account is a good alternative. Just make sure they have good credit â€” youâ€™ll be able to piggyback off of it and reap the benefits. As a rule of thumb, donâ€™t rack up high charges on their account just because youâ€™re not liable for paying the bills.
Find a co-signer. If you want to open a personal loan but lack the credit needed to do so, you may have better chances of approval if you apply with a co-signer who has good credit. A co-signer would take on some of the liability of the loan in the case you default, and lenders may see this as a safety net and be more willing to approve your application. Eventually, the co-signer may be able to be removed from a loan. When comparing personal loans to Self Lender, make sure to look closely at the personal loan APR and origination fees to see if they are lower or higher than Self Lender.
While a credit builder loan from Self Lender can help you build credit, it shouldnâ€™t be your first choice. Overall, itâ€™ll cost you at least $46 to open a loan and can be as much as $112. There are several other options, like opening a secured card or becoming an authorized user, that have the potential to be fee-free when used responsibly.
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