Credit Builder Loan Program

Did you know you could reestablish your credit score while saving a little bit of money every month?

What Is A Credit Builder Loan? 

That’s what the credit builder loan is all about. Basically, it works like this: you enter the program and take out a loan, the money from the loan is used to buy you a GIC, you make small monthly contributions to your loan and over the term of your loan pay it off. At the end, you reap the benefits of your GIC.

How Does A Credit Builder Loan Repair Credit? 

In other words, this program allows you to save by contributing to a GIC through a loan. Since you are paying down a loan you benefit from establishing your credit score as your payment history gets reported to the credit bureaus. On top of that, you are saving money and improving your financial profile. It’s a great way to get smart about your finances or get a fresh start.

How Fast Will My Credit Score Improve?

A credit builder can help build your credit, however, the time it takes depends on a variety of factors including how bad your credit score currently is and how you manage your other credit products. The effects of your credit builder loan can be offset by missed or late payments on your other credit accounts. As such, the time it takes to build your credit will vary for each person. 

How Much Will My Credit Improve With A Credit Builder Loan?  

There are multiple credit scoring models used in Canada, so the amount by which your credit score improves will vary depending on who’s calculating it. 

Credit Builder Programs In Canada

Climb – Accelerator PlanLearn More
Spring Savings LoanLearn More
Refresh Financial – Credit Builder LoanLearn More

What Are The Eligibility Requirements For A Credit Builder Loan? 

Most credit building loans don’t require credit checks and have very low requirements. So long as you can provide proof that you can make the credit building loan payments, you should be able to qualify. Lenders may also check your bank statements to assess your debt-to-income ratio as that can hinder your ability to make payments. In general, you can expect to provide the following documentation:

  • Personal Details – Personal documents such as a government-issued photo id, plus proof of address will be required. 
  • Bank Details – Your lender will usually also want your bank statements to assess your basic finances. A void cheque may also be required for loan payment purposes.  
  • Employment Verification – Pay stubs, an employment letter and tax documents such as a T4 may also be requested in order to verify your income and employment stability. 

Benefits Of A Credit Builder Loan

  • Affordable: A credit building loan program is very affordable, you’ll make one low payment each week until you’ve paid off your loan, the amount will depend on how big of a loan you decide to get. Because your weekly payment is so low most people often find that they do not need to make any significant changes to their budgets. You can expect to pay anywhere between $10 and $40 a week, depending on the size of your loan.
  • Convenient: The convenience of a credit building loan program is unparalleled. The rate of approval is extremely high, the application process simple and straightforward and the payments affordable. And once you’ve finished making your affordable payments not only will you have saved a significant amount of money but you’ll have improved your credit score and created a credit history for yourself. It doesn’t get any more convenient than that.
  • High Approval Rate: Because the actual money you’re being lent acts as its own collateral the approval rate for a credit builder loan is very high. Secured loans are a great option for those with lower credit scores or no credit history, the security means lenders take on less risk so they’re willing to lend to more people.
Refresh Credit Builder Loan
*Not available in Quebec and Saskatchewan

Drawbacks Of A Credit Builder Loan

  • Waiting for Your Money: With a credit building loan program you only get the money you’re borrowing after you’ve paid it off. For some people, this might not seem like the best option because they need the money right away. What most people don’t understand is that a credit building loan program has a specific use, it’s for people who aren’t able to get other types of loans because of their past financial issues. This type of loan is secured and therefore people with bad or no credit can be approved. A credit building loan program improves your credit score and helps you save money at the same time.
  • Interest and Fees: All loans and forms of credit have interest rates and fees, so while some people might decide against a credit builder loan because of the fees, they’ll be hard-pressed to find any type of loan that doesn’t come with fees. It’s something we all have to deal with, what’s important is that you choose a credit building loan that works best for you.

Cost Of A Credit Builder Loan

When calculating the cost of a credit builder loan, it’s important to know the following numbers. 

  • Fees – Often, credit builder loans will have a set-up or administrative fee. This can make your loan a lot more expensive. 
  • Interest – Like a regular loan, the interest rate on a credit builder loan is important to consider. The higher it is, the lower you’ll likely get back. 
  • Loan Amount vs Saved Amount – When calculating the loan cost, ask your lender how much are they “lending” you, how much your total payments will be and how much you’ll get back at the end of the program. 
  • Monthly Payment – Be sure to ask your lender how much you’ll need to pay per month. This will give you a better idea on how much the loan will cost you on a monthly basis, which can help with budgeting.
  • Do You Get Interested Back – Some lenders will hold your payments in a secured investment account until you’ve completed the program. During that time, your savings may earn some interest, which you get back. 
Refresh FinancialSpring Financial
Interest Rate19.99%(not provided)
Program Lenght36 months12 months
Monthly Payment$21.37 (bi-weekly)~$55 (bi-weekly)
Total Paid$1,667~$1430
Total Saved$1,250$750
Total Cost$417$680

Who Can Benefit From A Credit Builder Loan?

If you’re in the midst of a bankruptcy, a consumer proposal, or a debt management program, the credit builder loan can help you rebuild your credit and get you approved for a loan in the future. Or if you are a student or a new immigrant, the credit building loan is an excellent way to start building your credit rating. It’s also great for people with bad credit history looking to improve their financial future in order to make bigger investments or financial commitments. 

Confused about what a credit score and credit report are? Click here to learn more.

How Do People Use The Money From Their Credit Builder Loan?

  • For unexpected expenses or to build an emergency fund
  • To pay off debt
  • To put a down payment on a house
  • To pay for school or to pay off student loans
  • For retirement
  • To pay for a vacation
  • To make a down payment on a car

Credit Builder Loan FAQs

Do you need a credit check to qualify for a credit builder loan? 

Most lenders who offer credit builders loans won’t require a credit check. 

What will my payments be like?

Payments amounts will vary based on the lender, the interest rate, the loan amount and term length of the loan. 

Where can I get a credit builder loan in Canada? 

You can get a credit builder loan from online providers such as Spring Financial, Climb and Refresh Financial. 

Is a credit builder loan a good option for me? 

Credit building loans are perfect for people who just want to start saving some money while improving their credit. No specific reason is needed to apply for a credit builder loan, it’s your loan and once it’s paid off, it’s your money to do with as you please. Whether you’re looking to start an emergency fund, pay off student loans or get back on track after a job loss, a credit rehab savings program will help you with whatever financial goals you have or issues that you want to correct.

Can a credit builder loan hurt my credit? 

A credit builder loan can damage your credit just as it can help improve your credit. The same way your payments can help you build a positive payment history, any missed payments you have can negatively impact it. 

Bottom Line

Rebuilding your credit history is a serious task and sometimes it can take years, this is why it’s so important that you have a plan. Adding a credit-building loan program to your plan of attack will not only help you improve your credit scores quicker but will help you save money. A credit builder loan is a financial tool, one that is not only very easy to use but very easy to be approved for. No matter what your financial past looks like, a credit builder loan can help you achieve your goals and refresh your finances for a brighter and better financial future.

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