Do you have lousy credit, and feel like it is impossible to rebuild your credit history and score?
Building credit can be difficult when you’re starting out, but it can seem impossible if you have poor credit already. It’s difficult enough to get banks to loan you money if your credit profile is thin, but it’s even harder to rebuild your credit after a mistake.
A new business model called Self Lender promises to solve this problem. This is a unique program that helps people with not one but two very common problems: crappy credit and no savings!
A full 81% of people in the United States say they don't have enough cash on hand to cover a $1,000 emergency, according to a recent Bankrate survey — and with many people drowning in debt, it can be impossible to rely on credit cards or another type of loan to save you in an emergency like car or home repair, unemployment or a medical crisis.
Self Lender promises to help consumers build their credit and prepare their finances to borrow the money they need — while building a savings account.
In this guide, we’ll go through the Self Lender process, I'll explain how it works, why this is a great option for so many people, and how much it costs.
What is Self Lender?
The idea behind Self Lender is this: The big Catch-22 of credit repair is that to build credit, you need to prove responsible credit repayment. However, often that people with bad credit can't qualify for a loan or credit card to prove how responsible they are! Poo!
However, a credit-builder loan like SelfLender.com can help build that credit history you need. Self Lender gives you a loan, while helping you repay that loan regularly, and on time. Self Lender loans are reported to the three big credit reporting agencies — Experian, Equifax, and TransUnion — just like any other loan. As a result, regular monthly payments can help boost your credit score over time.
Meanwhile, the payments you make are saved in an account that is YOUR MONEY. That is right, at the end of your repayment process, you not only should have a much higher credit score, but also a nice savings account.
In a lot of ways, a credit-builder loan is a lot like a secured credit card. Once you pay to have the account set up, you’ll make regular monthly payments on your account just like you would with any other loan.
Unlike a traditional loan, however, you don’t get the proceeds of your loan upfront. Instead, your loan is placed into a 12 or 24-month CD that earns .10% APY. The CD account is held in your name and the funds are released to you once your loan is paid in full.
This is why the name “Self Lender” is so clever: you’re loaning yourself money, earning a little interest, and building your credit score in the process.
Currently, Self Lender is available in 47 states excluding Vermont, New York, and Wisconsin. To start a credit-builder loan with Self Lender, here’s what you’ll need:
- A bank account or debit card or prepaid card
- Email address
- Phone number
- Social security number (SSN)
- Be a valid permanent U.S. resident with a U.S. physical residence
- At least 18 years old
How Much Does Self Lender Cost?
Self Lender may offer a smart way to build credit when other options aren’t working, but it’s not free to use. The service charges an administrative fee along with other costs. Here’s how the pricing works for new Self Lender credit builder loans:
- Activate your account for $12.
- You’ll pay the monthly payment on your “loan” for the duration of the loan, plus an APR of up to 15.65%.
As an example, Self Lender suggests the following scenario: Let’s say you want to borrow $1,000 in a credit-builder loan account for a duration of 12 months.
In that case, you would pay $12 upfront and $89 each month for 12 months, for a total cost of $1,080. At the end of the loan term, you would get the loan amount ($1,000) paid to you in cash plus the interest from your CD. Since the CD rate paid is currently only .10% APY, you would only earn $1.00 in interest, however. In other words: In this scenario, it cost you $88 to rebuild your credit over a year, plus you walk away with $1,000 cash savings. BAM!
Self Lender offers 12 and 24-month loans in the following amounts:
Your costs will never be outrageous with these loans because you can’t borrow more than $2,200, despite the fact the interest rate on the loan can be up to 15.65%. The best part: you’ll get the funds you paid in once your loan is paid off just like if you had funded your own savings account.
Advantages of Self Lender
Whether you have no credit, little credit, or poor credit, Self Lender may be the answer to your prayers. The company can help you get a credit-builder loan account when you can’t get a loan elsewhere, and this can help you boost your credit score over time.
Some of the biggest advantages of Self Lender over other credit-boosting strategies include:
- You’ll build up a savings account. While Self Lender considers itself a “loan,” what you’re really doing is building up a savings account. As your monthly payment is saved in a CD, you’re building up a nest egg you’ll receive when your loan is paid off. In that respect, you are saving money and not really borrowing it.
- Qualifying is easy. Self Lender doesn’t have the stringent credit requirements some credit cards and personal loans do. For that reason, it may be a lot easier to qualify for Self Lender if you can’t get credit elsewhere.
- Build credit. Obviously, the biggest benefit of Self Lender is the fact it helps you build credit over time. Since your “loan payments” will be reported to the three credit reporting agencies, your credit-builder account will help boost your credit score over time.
- Other perks – In addition to your credit-builder account, Self Lender offers other benefits such as credit monitoring and score-tracking. These perks are free, and you can use the information you find to help build your credit score even higher over time. It can be really satisfying to watch your credit score improve, month after month while seeing your savings account grow. Money is power, ladies. Never let anyone tell you differently.
Disadvantages of Self Lender
While Self Lender can help you build credit when it seems like no other options are available, there are downsides to be aware of. Some of those negatives include:
- Pricing – Self Lender isn’t free to use. Not only do you have to pay a $12 administration fee, but you have to pay interest up to 15.65% on your loan. These costs may be low since loan amounts are small, but they are still worth considering.
- Closing your account has downsides. According to Self Lender, there are two ways to close your account early. You can pay the amount due in full, or you can make at least one loan payment then close the account and use the proceeds from the CD to pay off the loan amount. Either way, you will need to pay an “early withdrawal” fee equal to 90 days of CD interest to close out the CD and withdraw the funds early. This is avoidable. Stay the course!
- Late fees – There are also late fees, although you should expect a late fee any time you pay a bill late. After your 15-day grace period, you will owe a late fee equal to 5% of the scheduled monthly installment amount.
- Possible damage to your credit score – If your payment is more than 30 days late, you’ll hurt your credit score more than the credit-builder account helped it. At that point, your late payment will be reported to the three credit reporting agencies, and this could cause your score to drop.
Who should try Self Lender?
At the end of the day, anyone who wants to build credit could consider opening a credit-builder loan account with Self Lender. However, the ideal client is someone who can’t get credit elsewhere and doesn’t care about the high-interest rate.
Self Lender may also be a good fit for someone who wants to save money but doesn’t have a lot of self-discipline. A small credit-builder account works a lot like a forced savings account, and you’ll get all your payments back once you complete the terms of the loan.
Other ways to build credit
Before you sign up for Self Lender, note the other ways to build credit. Some of the best options include:
- Get a secured credit card. Secured credit cards let you build credit after putting down a cash deposit as collateral. These cards tend to offer low credit limits that are equal to your deposit, yet they report your credit movements to the three credit reporting agencies to help you build credit over time.
- Open an unsecured card – If you are able to qualify for an unsecured credit card, this is another good option. Credit cards can help you build credit and boost your score provided you make your monthly payments on time and keep your utilization low.
- Become an authorized user – If a parent or trusted friend will add you as an authorized user on their credit card account, you can build credit as they make payments and use credit responsibly.
The bottom line
While there are plenty of ways to build credit, Self Lender offers an interesting proposition. This easy-to-use service lets you take out a credit-builder loan and pay yourself back without any egregious fees or crazy hoops to jump through.
If you have trouble getting approved for a loan otherwise, Self Lender is a smart option. As long as you make your payments on time, you’ll get some much-needed positive reporting on your credit report. And, you’ll eventually get all the money you paid in plus a nominal amount of interest.
There’s plenty to be gained with Self Lender, and very little to lose. If you sign up and give it a try, let us know how it goes.
Emma Johnson is a veteran money journalist, noted blogger, bestselling author and an host of the award-winning podcast, Like a Mother with Emma Johnson. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post's ‘Must Read” list.
Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.