By Noah Gomez
Published: 4 August 2024
Credit Unions are in many ways the cornerstone of credit builder loans. Contrary to banks and purely for-profit digital lenders, they are legally structured as member-owned, which means they have a legitimate interest to help consumers. That's not to say banks and online lenders don't provide good options, but there's something to be said for a lending institution whose motivations align with the product they are offering.
The downside to credit unions is that they often have strict membership criteria, including narrow geographical availability or affiliation with local schools and/or companies.
That's why nationwide availability is a requisite for this list. We identified 7 offers available in at least 46 states with below-average interest, competitive term lengths, and flexible principal values. In other words, everyone can find a good match in the offers below.
Avg. APR: 3
Avg. Principal ($): 650
Avg. Duration (mnths): 12
Avg. APR: 3.95
Avg. Principal ($): 1150
Avg. Duration (mnths): 21
Avg. APR: 4
Avg. Principal ($):
Avg. Duration (mnths): 15
Avg. APR: 5
Avg. Principal ($): 1750
Avg. Duration (mnths): 18
Avg. APR: 10
Avg. Principal ($): 750
Avg. Duration (mnths): 24
Avg. APR: 13.25
Avg. Principal ($): 1000
Avg. Duration (mnths): 12
Avg. APR: 3
Avg. Principal ($):
Avg. Duration (mnths): 54
Est. APR (%): 3
Avg. Principal ($): 650
Avg. Duration (mnths): 12
Credit Check: Soft Inquiry
Hidden away in Vermont, the state employees credit union often flies under the radar, likely because it's easy to assume they're only available in the state. But VSECU is accessible nationwide via an $8 yearly subscription to the Financial Fitness Association non-profit.
You would be hard pressed to find a credit builder loan in the $300 – $1,000 range over twelve months with a lower interest. The national average for credit-builder is just under 8% and VSECU clocks in at just under 3%, virtually placing it in a class of its own.
This does not include the $8 yearly subscription for out-of-state lenders, but this is tax deductible and also supports a good cost. The net cost of membership + interest is still lower than a big majority of offers even on $1,000 maximum principal.
Est. APR (%): 3.95
Avg. Principal: 1150
Avg. Duration (mnths): 21
Credit Check: Hard Inquiry
Cooperative Federal is available nationwide with a $5 one-time lifetime membership to Inclusive Economy CNY. What makes CFCU unique is the combination of low principal possibilities ($300) and a 6 — 36 month term range. This combo unlocks value for most consumers because you can effectively "build you own" loan that best serves your needs.
The downside to CFCU is that they run a hard inquiry in the approval process. This isn't a terrible thing, but it can cause a few point drop in your score for 6 months to 1 year.
For example, if you have zero credit, going with a $500 loan over 24 months makes a lot of sense. Alternatively, if you have a charge off for $1,000, it makes more sense to opt for a 12 month $1,500 combo.
Est. APR (%): 4
Avg. Principal ($):
Avg. Duration (mnths): 15
Credit Check: Soft Inquiry
Self-Help's offer has terms comparable to Cooperative Federal (except a 24 month max. term), but it doesn't require a hard inquiry. The absence of a hard pull means this is likely easier to qualify for as well.
Factually speaking, the terms are competitive even on the national stage. At 4%, it's APR is nearly 2x better than the national average. A term range of 6 — 24 months suitable for most consumers, and $500 — $2,000 in principal is also healthy for most of our readers.
The combination of soft inquiry and these terms positions Self-Help as a go-to for anyone with no credit history or small negative marks who also doesn't want a hard pull on their report.
Est. APR (%): 5
Avg. Principal ($): 1750
Avg. Duration (mnths): 18
Credit Check: Hard Inquiry
Digital Federal Credit Union is one of the nation's largest, so it's no surprise they offer a credit builder loan. In fact, they offer virtually every consumer financial product, which is why we place them number 4 on our list. If you're unhappy with your current banking institution, you may consider switching to DCU with the credit builder loan then benefiting from all it has to offer.
Objectively speaking, DCU's offer competes with the best of them. At 5% APR, it's far below the national average of 7.78%. A 12 - 24 month term and $500 - $3,000 principal ranges are healthy and serve the needs of most consumers.
Est. APR (%): 10
Avg. Principal ($): 750
Avg. Duration (mnths): 24
Credit Check: No Credit Check
Zing charges slightly higher interest than others on the list, but it doesn't run a credit check. This basically means you pay more to avoid the credit pull. For consumers with large or numerous negative marks, this can be a lifesaver.
At 10%, the annual percentage rate Zing applies is only about 2.5% higher than the national average, which seems quite generous given the absence of a credit check. Moreover, principal ranges from $500 - $1,000.
A downside is that this loan is only available for 24 month periods.
Est. APR (%): 13.25
Avg. Principal ($): 1000
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry
Hope is interesting because you can join with $5 dollars and simply "believing" in the credit union's mission. Beyond that, we think it's more or less comparable with many local credit unions, but it's available nationwide.
Est. APR (%): 3
Avg. Principal ($):
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry
First Tech Federal's credit builder is called "share-secured," which is a type of fully-secured loan in which you must put the full principal amount of the loan on deposit in order to secure the loan.
The advantage of this structure is that loan principal is virtuously unlimited, as long as you have the savings to back it.
To be clear, so called "share-secured" or "savings-secured" loans are NOT good financing tools. But they can be the most powerful credit-builders for those with healthy cash reserves.
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 being $1,000.
Exceptions to these ranges would normally be made for the
most important loan variable: interest. This list has no conflicts
between low loan APR and ideal principal + duration ranges.
Most
importantly, the deciding factor for this list is the lending institution being a credit union. As we've stated, many so-called "local
credit unions" are counterintuitively available nationwide through a system of non-profit
affiliation or belief alignment. Every option on our list is available in at least 46 states.
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.
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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