“If you would know the value of money, try to borrow some.” – Benjamin Franklin.
If you’re like a lot of people you may have less than perfect credit and are looking for a legitimate way to improve your finances. This is usually done by taking out small loans and paying them back. However, if you have less than perfect credit, your options are limited.
In the world of Fintech, there are new options for getting credit building loans if you want to work on building your credit score. In fact, Texas-based startup Self Lender has a credit builder loan offering available to borrowers in all 50 states.
Challenged Credit? Self Lender is Friendly
Self Lender offers reasonable solutions for those in need of building credit, while still allowing you to save for the future. The Self Lender team understands that your payment history makes up a huge chunk of your credit score, 35% of your FICO score to be exact. They also know that if you’ve had problems in the past, you don’t have a lot of options for improving your score and accessing more financial independence.
Self Lender doesn’t believe you should have to compromise yourself by getting another person to co-sign for your credit improvement. You should have other options for building credit on your own.
Self Lender Credit Building Loan
One option for rebuilding credit has always been to get a small, personal loan. Previously, this was often done through your own bank. Unfortunately, depending on how poor your credit rating is, this may not be a viable choice. Self Lender can fill in the gap with a credit building loan.
With Self Lender, you aren’t taking out a loan to purchase something you cannot afford right now, and you are still making moves to impact your score with the three credit bureaus. You also aren’t agreeing to spend money with credit just to have a FICO score. You simply recognize that having a good credit score is necessary for keeping your options open for future scenarios like becoming a homeowner or purchasing a vehicle.
If you are 18 years of age or older, are a permanent U.S. resident, have a Social Security number, and a bank account or debit card, you are eligible to apply for a Self Lender loan. Once you start making monthly payments to your account, you begin creating a payment history that will help you reach your goals of increasing your credit score.
Self Lender vs. Prepaid Credit Cards
It may seem very similar to a prepaid credit card, which has likely been your only option until now. However, Self Lender works quite differently. Unlike prepaid credit cards, there are no large upfront deposits for the loan — only a small administrative fee of about $9 to $15***. Once you choose the amount of the loan, you’ll decide upon a monthly payment that’s most manageable for you.
Depending on the loan amount and term, you may pay an amount as low as $25 per month for two years, all the way up to $194 per month for one year. The APR of a Self Lender loan is dependent on the amount of the loan, monthly payments, and the length of the loan term, which won’t ever exceed 16%.
How Does Self Lender Work?
Let’s say you’ve sorted out all the above details. Where does the loan money go? The way Self Lender differs most from prepaid credit cards is in how the money is stored and accessed. Self Lender deposits your loan into a Certificate of Deposit (CD), where it remains until the loan is paid in full. It will gain a little bit of interest from the CD over the loan term you’ve chosen, but it likely won’t negate the interest you pay into the loan.
Although you still pay slightly more than the total loan amount because of its APR, the key is to prove to the credit bureaus that you can make payments on time and consistently. It’s a very small price to pay for the reward of building credit and creating more financial opportunity.
The only additional fees with a Self Lender loan are from payments that aren’t made on time. You can expect penalties on payments made 15 days or later to be 5% of your monthly payment. While Self Lender doesn’t report the late payments unless they are 30 days or more late, the idea is to be vigilant with on-time payments to boost your credit. Late payments and defaulted loans will disrupt your credit score and result in the opposite of what you set out to do.
Self Lender Comparison to Unsecured Loans
You may wonder about the benefits of paying into a Self Lender loan if you have been approved for an unsecured personal loan from another lender, despite poor credit. Why pay into an account for 1-2 years and receive no money until the loan has been paid in full? Can you build credit the same way with a personal loan from a different lender, while also receiving the loan money up front?
What’s the Difference?
Well, choosing Self Lender over the other personal loan comes down to a few considerations.
The first thing to think about is your personality. This requires a little introspection. How are you with money? Do you trust yourself to make payments on time, and do you trust yourself to manage your loan amount responsibly if you receive the money upfront?
A second thing to consider is your needs. An immediate personal loan is beneficial in an emergency, but for the purpose of rebuilding credit, you may find it’s unnecessary to have the loan money right away. And you might want the discipline of a longer commitment. Habits take time to build and the discipline of paying into an account that you can’t touch prepares you for a solid future while teaching you solid financial habits.
Cost is an important consideration. Typically, with poor credit, getting approved for a personal loan is not only difficult, but it also comes at a greater cost. The APR can be as high as 30%, which means you’ll pay much more in interest over the term of the loan.
Self Lender also lets you access your credit monitoring at no cost.
Is a Self Lender Loan for You?
If you’re stuck between a rock and a hard place without credit, it’s wise to explore your options for getting out of that rut. Self Lender allows you to demonstrate an ability to successfully pay on an installment loan and increase your credit score with on-time payments and monthly reporting to all three credit bureaus — which should reduce your borrowing costs over the long run.
At the end of the loan term, you will have access to the money you have consistently deposited over the past 1-2 years. You’ll not only gain the increased credit score, but you’ll also have your savings and the fulfillment of knowing you delayed your gratification for a bigger picture.
Once you understand how Self Lender loans work, you can decide if they can work for you.
* Subject to ID verification
** Credit scores and credit monitoring will only be available to customers who our third-party vendor is able to validate.
***Sample products are $25 monthly loan payment at a $525 loan amount with a $9 administration fee, 24 month term and 14.92% Annual Percentage Rate; $48 monthly loan payment at a $545 loan amount with a $15 administration fee, 12 month term and 15.65% Annual Percentage Rate.
1 Credit Builder Account — proceeds are held in a deposit account until maturity
1. All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A. Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A. Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to consumer report review and approval. Results are not guaranteed. Improvement in your credit score is dependent on your specific situation and financial behavior. Failure to make monthly minimum payments by the payment due date each month may result in delinquent payment reporting to credit bureaus which may negatively impact your credit score. This product will not remove negative credit history from your credit report. All loans subject to approval. All Certificates of Deposit (CD) are deposited in Lead Banks, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC.
We are an affiliate of Self Lender. Although this posting contains affiliate links, the review and opinions expressed below are my own.