Which is better between credit-builder loans and secured credit cards?

Question

A credit-builder loan is a secured loan because you have to make the payments before receiving the funds, and the lender can keep the money if you don’t complete the payments. The lender will also report negative information to the credit bureaus if you don’t make payments, which will hurt your credit score. This defeats the purpose of getting a credit-builder loan.... read full answer

If you do make all the payments on time, the lender will give you the money at the end of the loan term. These on-time payments will also help your credit score by adding positive information to your credit reports.

To read about the top-ranked offers, check out WalletHub’s picks for the best credit-builder loans.

show less

Answer 1 · 2022-01-13 21:35:01

see this user

Grace Enfield, Content Writer

@grace_enfield • 01/13/22 This answer was first published on 01/13/22. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

Permalink Report Abuse

Secured credit cards are better than credit-builder loans overall. Both can help you build credit, but secured credit cards are cheaper and easier to find than credit-builder loans and do not force you into debt right away. With a secured credit card, you just have to put down a refundable security deposit before you can begin making purchases.

You can also build credit with a secured card without spending any money, aside from the deposit, which you get back upon closing your account with a $0 balance. With a credit-builder loan, on the other hand, you generally have to make months of payments before you get access to your money.

Secured Credit Cards vs. Credit-Builder Loans

Borrowing Method

Pros

Cons

Secured Credit Cards

Easy to get, even with bad credit

Report monthly to credit bureaus

Prevent overspending

Security deposit required

Credit limit is usually equal to the amount of the deposit

No application fee

Credit-Builder Loans

Low APR

Possibility of getting an interest-bearing bank account with the loan

May get some of the interest you paid on the loan back at the end

Takes a long time to get your funds

Not offered by most major banks or credit unions

Don't let you borrow money

There may be a fee to get the loan

Ultimately, either a credit-builder loan or a secured credit card can help you build credit. If you want more options and the ability to make purchases without having cash on hand, you should consider getting a secured credit card. If you don't want to put up a security deposit, a credit-builder loan may be better for you. You can learn more about secured credit cards and credit-builder loans on WalletHub.

Which is better between credit-builder loans and secured credit cards?

Grace Enfield, Content Writer

Secured Credit Cards vs. Credit-Builder Loans

Popular Secured Credit Cards

People also ask

Is a credit-builder loan a secured loan?

Will a credit builder loan hurt my credit?

Join WalletHub