While prepaying a loan is generally considered a good financial practice, we don’t recommend prepaying or paying off Credit Builder early. Here’s why:
Why Prepaying May Not Help
The primary advantage of the Credit Builder is that it reports your monthly payments to credit bureaus over a 36-month period. This consistent reporting helps you establish both credit history and payment history, which are crucial for improving your credit score. If you choose to prepay or pay off the Credit Builder early, you will shorten the term of this product. This means you will miss out on the opportunity to build your credit history over the full 36 months. Unless you have already reached your credit score goal, prepaying could undermine the very purpose of using this product.
No Interest Charges
Additionally, it’s important to note that there are no interest charges associated with the Credit Builder; it operates on a fixed fee basis. Therefore, paying it off early won’t provide any financial advantage in terms of saving on interest.
Flexibility to Cancel
On a positive note, if you find that the Credit Builder is no longer serving your needs, you can cancel it at any time. Upon cancellation, you will receive any equity that has accumulated up to that point. This flexibility allows you to manage your finances according to your current situation while still benefiting from the credit-building process.
In summary, while paying off debt early is typically advantageous, in this specific case, it would not help you achieve your credit-building goals as effectively as maintaining the full term of the Credit Builder.