Credit-Builder Loans vs. Savings-Secured Loans

Published: 29 October 2023
Updated: 4 April 2024

Author: Noah Gomez

Credit builder loan (CBL) comparisons help consumers decide when getting one is a smart choice for their situation. The devil is in the detail, and highlighting pros & cons between savings-secured loans & CBLs uncovers key insights that otherwise require hours of investigation.

credit builder loans vs. savings-secured loans

Savings-secured loans (SSLs) require borrowers pledge money in savings as collateral in order to obtain low interest rates. This structure means they meet the parameters of fully-secured credit builder loans. In other words, savings-secured loans are one variation of one type of CBL.

Takeaway for Consumers

Savings-secured loans are a variation of fully-secured credit builder loans (FSCBLs). Like all FSCBLs, they require the borrower collateralize the full principal value up front, which procures low interest rates and builds credit.

SSLs are designed for consumers with weak credit but comfortable cash reserves who want improve their credit without investing time.

Key Difference

Fully-secured credit builder loans are a product category that includes savings-secured loans. Specifically, SSLs require borrowers pledge money in a savings account but do not use the savings to pay down the loan, whereas other FSCBLs use the savings funds to pay down the principal.

Key Similarity

Savings-secured loans and credit builder loans both accept subprime borrowers using savings-based collateral to help them thicken their profile.

Properties Compared

Credit builder and savings-secured loans share properties in four (4) areas. These are consumer highlights, product specifications, lender conditions, and credit reporting. This investigation compares the products through these four lenses to help consumers make a smart choice.

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. Savings-secured loan marketing does not focus on credit building, but like CBLs, building this is their only legitimate use contrary to many marketing tactics.

Similarities. SSLs and CBLs both build credit for consumers with below-average thin profiles.

Differences. Savings-secured loans are often falsely marketed as funding tools for major purchases in the same way as a personal loan.

Exceptions. There are no exceptions to purpose between SSL and CBLs.

#2 Uses

Summary. Borrowers use both products to build credit, and some erroneously use savings-secured loans to fund purchases due to a psychological bias called the endowment effect.

. Credit building is the core usage for both SSLs and CBLs.

. SSLs are often marketed as funding tools that provide borrowers with low-rates loans without requiring they spend hard-earned cash, although the reasoning is fallacious because the the use of cash directly for a purchase eliminates interest expense and would be confiscated in the event of default on an SSL.

. One type of credit builder loan, called unsecured, provide cash up front with no need for collateral.

#3 Target Borrowers

Summary. SSLs and CBLs both target borrowers with limited, damaged, or zero credit history, but SSLs go one step further to focus on those with savings held in interest-bearing account most commonly deposited at credit unions.

. Borrowers with subprime credit, either because of mistakes, few accounts, or no accounts, can benefit from the credit building power of SSLs and CBLs.

. Consumers should be cautious of savings-secured loans pitched as funding tools.

. There are no exceptions to target borrowers for CBLs and SSLs.

#4 Popularity

Summary. There are approximately 200 — 750 credit builder loans in the market. While there is not sufficient data on savings-secured loans, most institutions offering CBLs also offer SSLs whereas not all those offering SSLs provide CBLs. In other words, there are more SSLs than CBLs.

Additionally, SSLs and CBLs are types of personal loans that constitute approximately 2% of total consumer debt¹ and therefore represent less than 2% each.

. CBLs and SSLs have a strong presence at regional banks, credit unions, and online lenders.

. Because institutions that offer SSLs also offer CBLs, but not all that offer CBLs also offer SSLs, it stands to reason that SSLs are more popular than CBLs.

. There are no exceptions to popularity figures between CBLs and SSLs.

#5 Amount

Summary. The maximum value of savings-secured loans is equal to the amount of savings the borrower can pledge, whereas credit builder principal is just under $3,000 on average.

. SSLs and CBLs can be the same amount and usually range in the thousands for credit building purposes.

. SSLs can be any amount that the borrower has in savings, whereas conventional credit builder loans usually range from approximately $200 to about $3000.

. Because fully-secured credit builder loans are the parent category of savings-secured loans, they can also be any amount the borrower has in savings.

#6 Term

Summary. The most common terms for credit builder loans are 12, 24, 6, and 36, whereas savings-secured loans often last as long as 7 years.

. Both products are available in short durations of ≤12 months and long durations beyond that.

. Because conventional credit builder loans target speed, many lenders offer then in the 6 — 12 month range, whereas the dubious marketing of SSLs as financing tools means they are rarely less than 12 months.

This is also a byproduct of their using interest-bearing savings and certificates of deposit that rarely provide persuasive returns under 12 months.

. There are no notable exceptions to term length between CBLs and SSLs.

#7 Interest

Summary. At 6% — 14%, credit builder loan interest rates are comparable to the average 10.64% interest on SSLs.

. Interest rates are roughly equal on average because both credit builder loans and SSLs use collateral to keep low rates.

. There are no differences between CBL and SSL interest rates outside normal variance in rates between lenders.

. There are no exceptions on interest.

#8 Collateral

Summary. Savings-secured loans require the exact amount of collateral as the principal amount of the loan up front, whereas conventional CBLs require the same amount but paid progressively with each installment.

. Both products require collateral equal to the principal amount of the loan.

. SSLs require collateral up front, whereas conventional CBLs require it be paid into savings over time with each installment.

. There are no exceptions to collateral because it is a defining property of SSLs and CBLs.

#9 Lender Types

Summary. SSL and CBLs are available through banks, credit unions, and digital lenders, but CBLs are most popular via online providers.

. The three main lender types — banks, credit unions, and online lenders — offer both loans. For example, M&T bank, First Tech credit union, and Bright (online lender) all offer SSLs.

. Good CBL offers are most popular through online lenders, whereas SSLs generally originate from credit unions.

. There are no exceptions to norms of lender types between CBLs and SSLs. These are the only options available.

#10 Lender Opinion

Summary. Lenders view credit builder loans and savings-secured loans the same way on credit reports. The account type displays as secured personal loan, as will all payment-secured CBLs.

. Lenders value the installment debt of both products equally because they are both secured term loans.

. There is zero difference in lender opinion of CBLs and SSLs.

. There are no exceptions concerning lender opinion.

#11 Impact on Credit

Summary. In the same way lender opinion is equal, so too is impact on credit report and score. SSLs and CBLs both impact 3 primary credit factors called payment history, credit mix, and account age.

. Because both products are secured installment debt, they impact credit the same way and feed credit factors such as credit mix (with installment account type), payment history (with each monthly payment), and account age (by anchoring and account that lasts 7 years).

. There are no differences in impact to credit between CBLs and SSLs.

. There are no exceptions and borrowers can feel confident their profile (report + score) will improve with responsible use of both products.


Altogether, savings-secured loans are a type of credit builder loan called fully-secured and as such require the full principal amount in collateral before the start of the payment schedule.

Beyond that, conventional credit builder loans look and feel the same as SSLs to lenders and borrowers alike.


  1. Board of Governors of the Federal Reserve System. 2016. “Federal Reserve Board - Survey of Consumer Finances (SCF).” Board of Governors of the Federal Reserve System. 2016.
  2. Gomez, Noah. 2023. Review of Credit Builder Loan Offers Dataset. Thick Credit. July 24, 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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