What Is a Credit Repair Loan?

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Do you have bad credit? Have you been denied a home loan or car loan because of your credit score? If so, a credit repair loan might be for you. With this type of loan, you can fix your credit by making monthly payments on time and improving your credit history over time. 

Today, MoneyWizard is gonna teach you all you need to know about credit repair loans and how they work.

What is a Credit Repair Loan?

A Credit repair loan, or “fresh start loan,” as they are sometimes called, is a type of personal loan that allows you to pay off your debts by making monthly payments in full and on time. Bad credit loans are given to borrowers with marginal credit or bad credit and can be very helpful if you need to fix your credit score. A few lenders offer these loans, but credit union and online lenders offer them for the most part.

Benefits of a Credit Repair Loan:

There are many benefits to using an unsecured credit repair loan when you’re in a tight spot financially.

  •     Consolidate Your Debt
  •     Better Interest Rates
  •     Improve Your Credit Score
  •     A Quicker Repayment Option
  •     Peace of Mind

How Do They Work?

A credit repair loan works much like any other loan. You apply for the loan, wait to hear back from your lender about approval, and if you get accepted, you can use the line of credit to pay off your bills or consolidate your debt. If you’re approved, a portion of your monthly income will go towards paying off the loan, and you should be able to pay it in full within a few years.

Some lenders will also have you create a savings account to help improve your credit score. This is called a Credit Builder Loan and will allow you to deposit money into an interest-bearing account that’s linked to your loan, so you can build up savings and prove to the lender that you are capable of saving money.

Where To Get A Credit Repair Loan And What To Consider?

There are many places you can go to get a credit repair loan, but not all of them are trustworthy. It’s always best to stick with major lenders that you know and trust. This will ensure you get the best deal possible and don’t fall prey to unfair or misleading terms.

When applying for a loan, be sure to ask about the APR, or annual percentage. This is the amount of money you will pay to use the loan. It would help if you also asked about fees tacked on top of your APR. This is how lenders make their money, so don’t sign anything that doesn’t feel like a fair deal.

Also, ask about how payment options work and what penalties are associated with late or missed payments. Some lenders charge a small fee, while others add on interest and penalties that could get you into more debt than you started with.

Here are the main options you’ll have:

Banks

The most obvious place to go for credit repair loans is your local bank. These institutions have been around for a long time and are known for their wealthy lending practices. They typically offer lower APRs than other types of lenders, but the interest rates you’ll get will depend on your own financial situation.

Local banks also have more flexible terms when compared to national or online lenders. You can find out more about your local bank’s specific terms and conditions by consulting with a lender or financial planner.

Credit Unions

Credit unions are similar to banks because they provide loans and help their members consolidate debt, but there are some distinct differences between them. Credit unions have lower fees because they don’t need to turn a profit and charge you as much interest. This is because people usually run these lenders with a common goal: to help members get out of debt or prevent them from getting into financial trouble.

Online Lenders

Online lenders are growing in popularity because people get better deals from them, even if they’re not part of established financial institutions. The best thing about these lenders is that you can find out information online and research the terms, so you know exactly what you’re getting into before accepting the loan.

While some people may not trust online lenders as they do banks, they are becoming an undeniable force in the finance world. 

Consider searching: Credit repair loans near me on Google to find which financial institutions are available for business.

How A Credit Repair Loan Helps Your Credit Score?

A credit repair loan is very useful when you’re looking to improve your credit score. The reason for this is that a successful repayment of the loan will help show lenders that you can make payments on time – it’s one reason why you’ll need good and thorough documentation when applying for such loans.

For example, if you have a variety of debt that you can pay off with a loan, then using the money to pay your debts will give you a good payment history. It can be difficult to remember all the bills you have to pay every month, and missing just one could damage your credit score quite badly. Having only one payment to worry about reduces the risks of omission. 

What Are The Requirements To Get A Credit Repair Loan?

To qualify for such a loan, you’ll have to meet certain requirements. Although you may have to pass a credit check, you will most likely be accepted even with poor credit or no credit history at all. This is similar to when you apply for any other loan or line of credit, and it’s usually based on your financial status and situation.

You can expect to give lenders information like how much money you’re looking for, what you will use the money for, and where your income comes from. If you’re employed, this will most likely be your current employer because it had to be included in the application for the loan. Lenders also want to know about any other debts that you have and how much they are.

Make sure you’re open with lenders about your expectations as far as interest rates go and where you are financial. Having a good idea of how much interest they charge and what their lending practices are will help you know if the loan is a smart investment or not.

Of course, lenders will have different criteria for accepting or denying your application for a credit repair loan which may change depending on your financial situation. You can find out more information by consulting with the lenders directly.

 How Much Does A Credit-builder Loan Cost?

These loans have an interest rate higher than most other loans but cost less than what you’d pay if you let your debts go into collections. You can expect to pay between 10% and 20% in interest for such loans.

The reason for this is that you’re taking out a loan with the intent of using it to improve your credit score, which will eventually help you save money when buying future items like cars or houses. It’s also much easier to pay off such a loan because it won’t have the same terms and conditions as most other loans.

Credit-repair Loan Alternatives

If you’re not able to qualify for a credit repair loan, then there are other options you can explore. For example, if your income level doesn’t meet the lender’s standards, you can consider getting help from family and friends.

Another option is to work with a credit repair agency and pay them a monthly fee until your scores improve. This will usually take a few years, but the results are well worth it if you don’t want to take out a loan.

Finally, you can do some peer-to-peer lending. P2P platforms have gained popularity because they are more affordable than traditional lenders, and you might be able to find a lender that will work with your circumstances. This option is usually more difficult to obtain without a halfway decent credit score, however.

Takeaway

If you have not applied for such a loan before, it’s best to research what lenders look for when making these types of loans. Find out how much interest they charge and if the repayment terms are easy on your budget. 

About the Author

Tobias Simmons is a personal finance blogger born in Ontario and based in Las Vegas, Nevada. He's no Doctor of Science or financial expert but is a self-taught student giving advice for the average peer.

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