Best Credit Builder Loans from Banks
By Noah Gomez
Published: 4 August 2024
Banks are not the most prominent lender type in the credit builder loan space, but the few that do it offer something credit unions and digital lenders cannot: the reputation and security of private lending.
Generally speaking, these are not the most competitive offers in the market. They have higher rates and often harbor supplementary costs, but for consumers who prefer the confidence that comes from traditional lending institutions, we've identified the best 7 credit-builders from banks.
Comparative Summary of 7 Offers
#1 Pick
Regions Bank
Best Overall
Est. APR (%): 5
Avg. Principal ($): 1625
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry
Regions is our top pick because it provides a large principal amount range from $250 — $3,000 at below-average 5% APR (vs. 7.78% national average).
The loan term is a healthy 12 months, which allows you the flexibility in principal and rates to customize a schedule compatible with your situation.
It's also available in 15 states, which is unmatched from any bank with terms as competitive as this (BMO being the only alternative with more geographical coverage — 50 states).
The downside is that Regions runs a hard inquiry on your report, which will cause a temporary drop in your score, usually of just a few points.
#2 Pick
BMO Bank
Best for Nationwide Coverage
Est. APR (%): 12.24
Avg. Principal: 1000
Avg. Duration (mnths): 42
Credit Check: Hard Inquiry
BMO bank is the only offer available in every state, which makes it the best option for anyone and everyone. If the other options on this list are not available in your state and you're set on a bank, BMO is the best choice for you.
A major upside to BMO is term ranges. You can pay back the loan in 24 months or as many as 60 (5 years).
That said, you should keep in mind that the APR is nearly twice the national average and there's only one principal amount available ($1,000). We therefore recommend considering credit union and digital lender options.
#3 Pick
M&T Bank
Best Fully-Secured Option
Est. APR (%): 8.37
Avg. Principal ($): 51000
Avg. Duration (mnths): 36
Credit Check: No Credit Check
M&T Bank provides a fully-secured credit builder loan, which means you need to place all funds on account in advance where they earn interest. M&T will then issue a loan as high as the amount placed in savings, which means you effectively borrow against your savings.
The upside to this structure is flexibility. Loan durations range from 12 to 60 months, and you determine principal amount with your savings. Additionally, APR is relatively low at 8.36%, which means you control the total cost of borrowing with term length and principal.
It's important to note that fully-secured offers are NOT financing tools. You are better off using savings to fund a purchase because in the event of default the savings would be confiscated anyway. Instead, fully-secured options are the ideal credit-building tool because they are least expensive.
M&T Bank is only available in 9 states, so check out the summary page via the link below to see if you're eligible.
#4 Pick
First Bank
Best for Low Interest (MO, IL & CA only)
Est. APR (%): 4.01
Avg. Principal ($): 500
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry
First Bank comes in 4rth because it's the only multi-state option with APR below 5% (~4%). The term length is a stable 12 months, and principal amount is $500. These terms are typically best for those with zero credit history, but if you have a negative marks for $500 or less then First Bank is a good choice.
The one catch is you must be in Missouri, California, or Illinois.
#5 Pick
BankPlus
Best Unsecured Offer (Money Upfront)
Est. APR (%): 5.07
Avg. Principal ($): 750
Avg. Duration (mnths): 18
Credit Check: Hard Inquiry
BankPlus is among the more unusual credit builders. It offers two progressive loans as part of a larger program, the first for $500 and the second for $1,000. The loans you receive depend on your current credit score, but you can receive half of the $1,000 loan up front, which makes this the only (partially) unsecured credit builder from a bank that we know of.
Additional benefits include zero credit check, a low ~5% ARP and loan durations from 12 — 24 months, all catered to your current profile. You will get personalized training as well.
The downside is that BankPlus' program is only available in Mississippi, Louisiana & Alabama.
#6 Pick
Republic Bank
Best in Indiana, Ohio, Kentucky, Tennessee & Florida
Est. APR (%): 9.25
Avg. Principal ($): 1000
Avg. Duration (mnths): 18
Credit Check: Hard Inquiry
Republic Bank's offer is only available in 5 states and it does run a hard inquiry, but it's the only option with a small $500 principal available over 12 or 24 months, so you have some flexibility over total interest without sacrificing too much positive payment history.
#7 Pick
Milford Federal Bank
Best for Term Flexibility (MA & RI Only)
Est. APR (%): 3
Avg. Principal ($): 1250
Avg. Duration (mnths): 18
Credit Check: Hard Inquiry
Like Republic bank, Milford Federal provides flexible 12 and 24 month terms, but it also offers principal amounts up to $2,000. The real kicker is that it only charges ~3% APR, making it the ideal flexible-term option because longer durations will have a smaller impact on interest cost.
The downside? It's only available in Massachusettes and Rhode Island.
Evaluation Criteria
We base our selection on quantitative information collected and stored in a proprietary database, which represents the largest aggregation of credit builder loans in the world.
To
accommodate the largest number of consumers, we assume an optimal loan
duration as any term between 6 and 24 months. Additionally, we assume an
optimal loan principal between $500 and $3,000, with the most desirable
quantity as $1,000.
Exceptions to these ranges are made for the
most important loan variable: interest. This list has no conflicts
between low loan APR and ideal principal + duration ranges, with the
exception of BMO bank. It is included to
accommodate borrowers from every state.
Most
importantly, the deciding factor for this is that the lender is a bank, and not a credit union or online lender. Counterintuitively, many so-called local
credit unions are available nationwide through a system of non-profit
affiliation or belief alignment, but they are not included here. We assume the reader is looking for the confidence that comes with banks.
What is a credit builder loan?
Credit builders are personal loans that help consumers with little or no credit improve
their score by applying a combination of flexible eligibility criteria
and deferred principal distribution. Lenders include banks, credit
unions, and online lenders at an average principal of $3,283 and APR of 7.78%.
Read more here.
Are credit builder loans worth it?
They are worth it if you struggle to get normal personal loans, you have
damaged or zero credit history, or you simply have no installment
credit on your report.
Critiques sometimes call them gimmicky, but
the reality is that they get around a common misconception: that your
credit depends on the amount you borrow. It does not. A small principal
loan, even with above-average interest, costs pennies compared to the
benefits you gain from having positive installment history on your
report.
Thick Credit is not a credit repair organization, a credit conseling agency, or a debtor education providor. It does not act on your behalf to communicate with credit reporting agencies or provide pre-bankruptcy credit counseling and pre-discharge debtor education for bankruptcy.
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