Credit Builder Loan: What Is It & How Does It Work?
Credit Builder Loan; Credit building loan is the latest form of financing where the borrower takes advantage of a higher rate of interest and gets loans based on the credit scores of the borrowers. The rates are quite high and the borrower must pay off the amount of loan within a fixed period.
In this blog, we will tell you what credit builder loan is and how it works. We will also talk about the advantages and disadvantages of getting a loan in this kind of loan.
What is Credit Builder Loan?
The loan in this loan category is available only to those who have good credit score. These loans are available for people who have a credit history. A borrower can have two types of loans in this type of loan category, one is personal and another is home improvement.
Advantages of Credit Builder Loan
• This is an advance of loan that does not require an inspection of the home or any financial documents.
• There are no charges like processing fees, application fee, security deposit, etc.
• The term of the loan is 6 months to a year, and you can repay the loan easily within the tenure.
• There is a chance of paying off the whole amount of loan before the tenure.
• The amount of loan is flexible as per the affordability of the borrower.
• If you repay the loan on time, you will earn a higher credit score.
Disadvantages of Credit Builder Loan
• If you fail to repay the loan on time, then you will be charged a high penalty.
• It is a short term loan, so you have to repay it in a short period of time.
• You need to repay it before the end of the term.
• This is an advance loan, so you will not get money in your bank account.
• You can only borrow a limited amount of money
The Basics Of Credit Building Loan
For those who wish to avail the benefits of credit building loan but are not aware of how it works and what does it entail, this blog is the perfect option for you.
You can avail loan as per your need, and the amount will be paid over a period of 3 to 5 years. The interest rate of credit building loan depends upon the credit score of the borrower, but the minimum rate is 1.1% p.a.
Credit building loan can be used for many purposes like buying a house, vehicle, furniture, etc. If you want to get any kind of loan, then the best option for you will be credit building loan.
How does Credit Building Loan work?
Loan eligibility is based on your credit score and also the age of the applicant. You don’t have to worry about the income proof or collateral, as it is totally dependent on your credit score.
If you have good credit score, then you will have high chances of getting approved for the loan. Even if you don’t have a job, then you can still take credit building loan if you are a student or self-employed.
You can avail the loan as per your need, so, if you have an emergency or a large sum of money that you need to borrow, then you can use the facility offered by credit building loan.
You can also avail the facility of credit building loan for your business. If you are running a small-scale business or a shop, then you can use this facility to boost up your revenue and also earn more. You can use the loan to renovate your shop or make necessary changes.
Another benefit of credit building loan is that you don’t have to wait for the lenders’ approval. You can start making payments as soon as the loan is sanctioned.
Interest and prepayment
As we all know, interest is a costly factor. So, if you want to save the expenses, then it is the right decision to use credit building loan. Interest is calculated on a daily basis.
If you want to pay off the loan early, then you can make the payment by paying a lump sum to the lender. The total amount that you are going to pay back will be divided into equal parts.
We have told you everything that you wanted to know about the credit builder loan and now you can go ahead and get your own loan if you think it will be beneficial for you.