How a credit builder loan works
A credit builder loan reverses an ordinary loan. The lender holds the loan amount in a separate account, usually a savings account, so you cannot spend it, and you pay it off in fixed monthly payments over a set period. When the term ends you receive the money, less any fee taken from it. The lender reports your payments to the credit reference agencies, so on-time payments can help a thin or damaged record while missed payments can hurt it.
Because you get your own money back, the cost is not the whole payment total: it is the interest and the fees, less anything the held money earns. This calculator shows that net cost, with the money released at the end, so you can compare products on what building credit costs you.
Worked example: £500 over six months
Take a £500 credit builder loan at 15% APR over six months with no fees. The monthly payment is £86.78, so you pay in £520.70 and the total interest is £20.70. At the end you receive the £500 that was held, so the net cost of building credit is £20.70, which is £3.45 a month and 4.14% of the amount held.
Fees and the interest on the held money
Fees change the picture. On £800 over 12 months at 15% APR, with a £10 arrangement fee taken from the money released, a £2 fee with each payment and 2.5% a year earned on the held money, the monthly payment is £71.85, or £73.85 with the fee. Fees come to £34.00, the held money earns £20.23, you receive £810.23 at the end and the net cost of building credit is £75.99, which is 9.50% of the amount held.
If the arrangement fee is paid in cash at the start instead, the net cost is the same, but you receive the full amount at the end. On £600 over nine months at 18.5% APR with a £12 fee paid in cash, the monthly payment is £71.50, the interest is £43.54 and the net cost is £55.54. A longer term costs more: £1,000 over 24 months at 12% APR is £46.79 a month and £122.90 of net cost.
What this calculator does not tell you
It shows the cost, not the benefit. No calculator can say how much a credit score will rise, because that depends on your record, the agencies and the rest of your credit. Check that the lender reports to all the credit reference agencies and that the account is held in a protected account, and read the agreement for fees and for what happens if you stop paying. The rate you enter is an assumption: use the APR on your agreement.
For a small loan paid out at the start, use the micro-finance loan calculator.
Use the right country page
This page stays in pounds and uses UK terms: arrangement fee, credit reference agencies and APR as the effective annual rate. The country choices above the inputs open separate local pages. Choosing United States opens the US credit builder loan calculator, which uses an administrative fee and reads the APR as the nominal annualised rate. The inputs reset and amounts are not converted.
Inputs for the credit builder loan calculator
Loan amount held for you
The amount the lender holds in an account until you have finished paying.
Interest rate (APR) and term
The APR on your agreement, an effective annual rate, and the number of months you pay for.
Arrangement fee
A one-off fee, and whether it is taken from the money released or paid in cash at the start.
Fee with each payment
A fixed monthly account fee added to every payment.
Interest earned on the held money
The yearly interest the lender pays on the held account, added to what you get at the end.
CALCULATOR QUESTIONS
UK credit builder loan calculator questions
How does a credit builder loan work?
The lender holds the loan amount in an account while you make fixed monthly payments, then releases it at the end. The lender reports your payments to the credit reference agencies.
How much does a credit builder loan cost?
The net cost is the interest and fees less any interest the held money earns. £500 over six months at 15% APR costs £20.70.
Do I get the money back at the end?
Yes, less any fee taken from it, and plus any interest the held account earns. You pay in more than you receive, and the difference is the cost.
Is a longer credit builder loan more expensive?
Yes. £1,000 at 12% APR costs £122.90 over 24 months, and the monthly payment is lower at £46.79.
Will a credit builder loan raise my credit score?
It can help if the lender reports on-time payments, but no calculator can predict a score. Missed payments can hurt it.
What happens when I change country?
The United States option opens the separate credit builder loan calculator, in dollars, with an administrative fee and a nominal APR. Your inputs are reset rather than converted.