(MoneyHippo.com) – Having a good credit score can provide you the opportunity to secure better interest rates on loans, qualify for certain jobs, or rent a house. Still, credit scores don’t just happen. You must build them from the ground up, and one way to do that is through a credit-builder loan. You might be wondering if credit builder loans are worth your time, and the answer is: They can be if you’re careful. So, how do they work?
Traditionally, banks lend a person money, and the borrower pays it back over time. That’s a classic traditional loan. With a credit-builder loan, the borrower pays fixed payments first and only receives access to the funds at the end of the loan. The great thing about these types of loans is that you don’t need a strong credit score to get the loan because banks have designed them to help people build themselves up financially.
One obvious disadvantage to using a credit-builder loan is that you won’t have access to the money immediately, so it’s not ideal as a means for making immediate purchases or paying off debt. Another disadvantage is that you can’t pay it off early because the point of the process is to provide you with a payment history. An early payoff will stunt the record.
However, the advantages of the loan outweigh the negatives as long as you make your payments on time. You still receive money without being subject to harsh credit checks, and you receive money borrowed at the end of the loan because you already paid for it.
Additionally, the increase in your credit score could allow you to procure loans in the future for things like a car or a house. Credit builder loans can be good tools to create a positive financial future.
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