Credit Builder Loans vs. Auto Loans

Published: 29 October 2023
Updated: 4 April 2024

Author: Noah Gomez

A strong comparison of credit builder loans (CBLs) to auto loans highlights the essential pros and cons so consumers can make an informed decision about which is right for their profile.

credit builder loans vs. auto loans

The relationship between CBLs and auto loans is best defined as sequential. Auto loans finance the purchase of personal vehicles, and credit builder loans establish strong loan application profiles so auto lenders will approve at favorable interest rates.

Takeaway for Consumers

Consumers use credit builder loans to demonstrate responsible use of installment debt to improve their chance of auto loan approval with a low interest rate.

Key Difference

The primary difference is that auto loans finance the purchase of a physical asset in the form of a personal vehicle, whereas credit builder loans finance the creation of payment history and other credit factors for consumers with damaged, limited, or zero credit history.

Key Similarity

The key similarity is that auto and credit builder loans are both secured installment debt on consumer credit reports, so they have a similar impact on credit profile.

Properties Compared

Auto loans and CBLs share properties in 4 areas called consumer highlights, loan specifications, lender conditions, and credit reporting. This analysis compares the products through these lenses for consumer decision making.

Consumer Highlights

  • Purpose
  • Uses
  • Target Borrower
  • Popularity


  • Amount
  • Term
  • Interest & APR
  • Collateral

Lender Conditions

  • Lender Types
  • Lender Opinion

Credit Reporting

  • Impact on Credit

#1 Purpose

Summary. Auto loans finance the purchase of personal vehicles, whereas credit builder loans focus on establishing positive history for consumers with weak credit.

Similarities. Both products focus on helping consumers obtain a personal financial goal.

Differences. Auto loan purpose is more specific because it targets the purchase of a single asset type, whereas CBL purpose provides future benefit to fund the purchase of any asset or expense.

Exceptions. Unsecured credit builder loans can be used to fund assets and expenses.

#2 Uses

Summary. Uses for auto loans are limited to the purchase of personal vehicles, and credit builder loan uses are restricted to establishing your profile for the subsequent use of auto loans.

Similarities. The only usage similarity is that both loan types ultimately help consumers obtain auto loan approval at low rates.

. CBLs are preventative products that help consumers build a healthy profile so they're ready when the time comes for an auto loan.

. There are no notable exceptions to uses for auto loans and CBLs.

#3 Target Borrowers

Summary. Auto loans target borrowers with above-average credit who want or need to purchase a personal vehicle for which they do not have sufficient funds, whereas credit builder loans target consumers with average or below-average profiles.

. Borrowers with average credit can benefit from both auto and credit builder loans.

. The ideal profile for CBLs is a consumer with damaged, limited, or zero credit history, whereas auto loans are better for those with average or strong profiles that result from the use of credit builder plans.

. There are no notable exceptions to target borrowers for CB and auto loans.

#4 Popularity

Summary. Credit builder loans represent approximately 1% of total consumer debt (excl. mortgages), whereas auto loans represent just over 30%¹.

. There are no similarities to popularity metrics for these products.

. Auto loans are decisively more popular than CBLs, touching approximately 29% more of consumers' debt holdings.

. There are no exceptions to popularity metrics.

#5 Amount

Summary. Auto loans finance the portion of vehicle value not paid for with a down payment, which amounts to $38,000 on average², whereas credit builder loan average principal is just under $3,000.

. Auto loan amounts can be the same as credit builder amounts if the car value is low such as in the case of a used vehicle, or if the borrower pays a high down payment.

. On average, auto loans are approximately $36,000 higher than credit builder loans.

. There are no exceptions to amount between CBLs and auto loans.

#6 Term

Summary. Auto loans durations are 66 months on average and most commonly 48, 60, and 72 months, whereas the most common credit builder loan durations are 12, 24, 36, and 60 months.

. The only overlap between CBL and auto loan durations is 60 months, or 5 years.

. CBLs generally last less than 5 years, whereas auto loans last 4 to 6 years.

. Some CBLs such as Magnum by Credit Strong last 66 months, and some car loans can be as short as 24 months.

#7 Interest

Summary. Auto loan interest rates are 4% — 8% on average, whereas credit builder loans average rates range from 6% — 14%.

. There is an overlap of 2% from 6% — 8% for average rates on both products.

. CBL interest rates are generally 8% higher than auto loan rates.

. There are no exceptions to average interest rates for CBLs and auto loans.

#8 Collateral

Summary. Auto loans and CBLs both use collateral to secure the principal value, but auto loans use a physical vehicle whereas CBLs use cash collateral deposited to a savings account or certificate of deposit.

. Both loans use collateral to secure the principal amount.

. Auto loans use physical collateral in the form of a personal vehicle, whereas CBLs use cash held in savings.

. There are no exceptions to collateral between auto and credit builder loans.

#9 Lender Types

Summary. Banks, credit unions, and online lenders offer auto and credit builder loans, and the best credit builder loans come from online lenders whereas the best auto loan offers come from banks and credit unions.

. The three main lender types (banks, credit unions, and online lenders) provide CBLs and auto loans. For example, First Community Bank provides a CBL and Bank of America provides auto loans.

. Online lenders provide CBLs much more often than they offer auto loans, and they usually offer the most competitive CBLs.

. There are no exceptions to lender types.

#10 Lender Opinion

Summary. Lenders view credit builder loans as secured personal loans, and they view auto loans under a specific category designated for personal vehicle loans.

. Lenders see auto and credit builder loans under the same installment account type.

. Auto loans have a specific flag that lenders see and treat with particular importance.

. There are no exceptions to lender opinion with regard to credit builder & auto loans.

#11 Impact on Credit

Summary. Both auto loans and CBLs impact credit history, credit mix, and account age under installment accounts, but auto loans carry a unique flag and weight on reports due to their significance in consumer borrowing (appx. 30% of total debt excluding mortgages).

. Auto and credit builder loans are installment debt that impact three important credit score and report factors: payment history, credit mix, and account age.

. Auto loans carry significant weight under their own unique category on credit reports.

. There are no exceptions to impact on credit.


From the consumer's perspective, the relationship between credit-builder and auto loans is successive. Consumers use credit builder loans to create a profile that persuades auto lenders to approve loans applications at favorable rates.


  1. “The Fed - Consumer Credit - G.19.” 2019. 2019.
  2. “Auto Loan (Vehicle Loan).” n.d. Accessed November 7, 2023.

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About the Author

Noah Gomez (founder of Thick Credit) is a transatlantic professional and entrepreneur with 3+ years experience in consumer finance education. He also has 5+ years of experience in corporate finance, including debt financing, M&A, listing preparation, US GAAP and IFRS.

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