Your Life, Your Wealth: Best Planning Guide for Better Financial Future

Uncertainties won’t knock before taking charge of your life. Especially financial problems. Last month, my father, 55, absolutely fit with no chronic issues, was diagnosed with cancer. And who would deny the unsurmountable costs of cancer treatment in the country?

But that doesn’t mean we should quit planning for a better financial future. If you’re stuck with chronic dues or face contingencies that may put a hefty fiscal burden on you, choose credit builder loans.

I know it might sound odd at the moment. Indeed, you could have chosen many loans, microcredit or macro loan options, and bootstrapping options. This article is about that only. I’ll explain why credit-building loans the best options are to secure your financial future.

Introduction to Credit Builder Loans

A credit builder loan is not the one-stop solution to leverage your financial woes or any fixed income security. However, it does something that no other loan might help you with. It enables you to rebuild your credit to be eligible for any loan or credit package shortly.

You may be new to the credit scene without a loan. And now you need a bulk loan to handle an emergency. Think of nothing else than a credit builder loan. To know more, read below.

What is a Credit Builder Loan?

Are you paying your EMIs on time? I hope you are. Because if you aren’t, you can’t fathom how badly your credit score will get hit.

13% of Americans don’t repay loans on time. On that note, a build credit loan is the best option for all those who want to repair their creditworthiness and apply for loans.

Definition and Key Features of Credit Builder Loans

The credit builder loan works in reverse order. You get the loan funds after all of your EMIs are clear. In other words, you choose a convenient EMI option for yourself. Once you open the loan capital, you can save up the money.

If I were here, I would save the money in an FD account for about 1000 days. It would build up my capital asset strength. When your credit score is low, the banks see your capital asset strength.

Role in Establishing Financial Discipline

A credit builder loan is the best way to a more secure financial future. In fact, for a steady financial future, debt relief is the first step you must take. Lenders report your positive credit behavior when you pay all your EMIs on time and unlock your capital assets.

On that note, your credit score improves with every payment you make on time. As the EMIs end, your credit score is restored to some extent.

How Credit Builder Loans Work

It is an installment loan. You have to bear fixed monthly EMIs against your credit builder loan. It is almost similar to your loan. Or an auto loan or a mortgage loan.

The only difference is that you have to pay the EMIs in advance. After you pay all the EMIs, you will get the loan amount in hand, but not before that.

Firstly, there are no risks of payment default. If you miss EMIs, your bank doesn’t lose a dime. Instead, it will impose fines or deduct that month’s EMI amount from the sum you were supposed to get at the end of the tenure.

Application and Approval Process

Follow this process and get your credit builder loan approved in a flash:

Begin with scanning for an appropriate lender. All lenders don’t offer a loan to build credit. So, your role is to find a reasonable lender who offers a credit builder loan at affordable terms.

Once you have sorted at least five offers, it’s time to compare the options. How to compare? First, compare the loan terms of the vendors. By default, select the one that is offering the lowest interest.

After that, check the fees you have to pay. If you get a lender ready to give you a loan at 7 to 8% interest, this is your chance to grab an excellent offer.

However, if one offers a nominal fee that is less than 2% of the total loan principle, it is better to go with that option. So, you will have to make a wise choice here.

Requirements for Getting a Credit Builder Loan\Needless to say, your credit score won’t be fascinating if you are applying for a credit builder loan. So, the lenders will check for other things like:

1. What other loans do you have at the moment, and how does that affect your economy

2. Do your current loans allow you to save every month or at least allow you to break even?

3. What is your employment status, and where have you worked for the last 6 months (some employers may ask you for 12 months employment details)

4. Your current bank balance

5. History of your last 12 months of tax payments

Understanding the Approval Criteria

You will be offered a loan if the bank is satisfied with the abovementioned credentials. You may also negotiate the offer by calling your relationship manager.

If things work out, you will get the final loan quotation over email. And the “approved” tag for sure.

Loan Repayment Structure

The loan repayment generally occurs in uniform installments. It might be quarterly, monthly, or according to any pre-determined plan. Meanwhile, the repayment amount is calculated based on your loan amount, rate of interest, and the repayment term you’ve chosen.

Repaying the Loan Through Regular Installments

If you choose regular installments, it is better to select the tenure of 12 months. In the meantime, the interest rate, loan capital freed per month and other charges also remain the same. So, you get the maximum benefits. However, the charges accrued by a flexible repayment plan are always more.

Benefits of Credit Builder Loans

The credit builder loans are taken to improve creditworthiness. It helps borrowers become eligible for other loans and credit lines in 12 months. However, things may be different if your credit score is less than 450.

It will take at least 2 years to repair that score. That’s a long time, no doubt. But in the end, you will be:

• Establishing a Positive Credit History
• Building a Foundation for Future Credit Needs
• Improving Financial Habits
• Encouraging Regular Saving and Timely Payments
• Accessing Better Loan Options in the Future

How Credit Scores Influence Loan Terms

Credit scores have a grave impact on loan terms. If your credit score is 450 or around, your interest rate would be 14 to 15%. Meanwhile, someone with a credit score of 800 will pay 7 to 7.5% of interest.

The bottom line is that high credit scores help you reduce a loan’s interest. In the same way, a low credit score attracts heavy interest on your loan.

Challenges of Credit Builder Loans

A Credit Builder Loan is your last resort. Your financial future is at stake once you have failed to pay EMIs on time and skipped your installments regularly. It’s time you applied for a Credit Builder Loan. But remember, it comes with these challenges:

• Limited Access to Funds Initially
• Potential Fees and Interest Rates
• Missed Payments can make your monthly EMIs steeper

Steps to Build a Solid Financial Foundation

Your financial security is in your own hands. Moreover, you may follow these steps for a better financial foundation:

Step 1: Start Saving Early

Step 2: Invest Wisely

Step 3: Build and Maintain Good Credit

Step 4: Create an Emergency Fund

Habits for Long-Term Financial Success

If you don’t want to rely on a Credit builder loan, take charge for a better financial future today. Invest in steps like:

• Consistent Saving and Investing
• Financial goal setting for monthly savings
• Automating Investments for Convenience
• Staying Debt-Free or Managing Debt Effectively
• Continuous Financial Education
• Staying Updated on Financial Trends

Key Considerations for Financial Growth

For better financial growth, financial discipline is a must. Meanwhile, you have to be skeptical about the personal finance planning you are doing. You can follow the 50-30-20 rule.

It’s simple. You save 50% of your monthly income for recurring expenses and contingency costs. The rest 30% should go to your savings account. However, the remaining 20% is investible. You may use a SIP, stocks, funds, CDs, annuities, or cryptos.

Conclusion

Is your personal finance planning at stake? Maybe it’s time to think about a Credit Builder Loan. It is a one-stop solution for someone willing to improve their credit score.

All credit Builder loan firms send positive reports to credit bureaus monthly after you clear payment. Besides, you get capital leverage once you have paid all the EMIs. So, my advice would be to choose financial discipline first. If things go out of hand later, you can always go for a Credit Builder Loan.