Self Lender offers a way for everybody to increase their credit score by lending money to themselves through a FDIC insured CD account. For a total cost of about $75 and a duration of 12 months, Self Lender can increase your FICO, on average, by about 60 points.
The Austin-based FinTech company, Self Lender launched publically in March of this year; since then they have already gained over 2,300 users for their “credit building loan” program. Self Lender offers a way for people with little, no, or bad credit to increase their credit score with a secured loan of just $1,100. The concept is very similar to that of a secured credit card or secured loan from a credit union, but it differs in that Self Lender does not require borrowers to put down any significant deposit or have cash upfront. Instead, Self Lender requires only a $12 administration fee and the commitment of the borrower to pay $97 per month for 12 months; in return, Self Lender’s partner bank, Austin Capital Bank will put a $1,100 loan into FDIC insured CD with a 0.1% interest rate.
The Self Lender user cannot touch the loan money until all payments are made and the CD matures 12 months after the loan is made. Each on-time (and late) payment made on the loan is reported to the credit bureaus, with the idea that at the end of the 12 months the borrower can extract $1,101.10 ($1.10 earned interest) from the CD and walk away with an improved credit score. As Self Lender puts it, they are helping people “build credit while [they] save.” It’s not exactly a loan and it’s not really a savings account, but it is a lesson in credit.
No Money? No Credit? No Problem.
In a recent interview with Lending-Times.com, Self Lender co-founder, and CEO, James Garvey explained how he came up with the idea for the company and his reasoning for establishing it. Only two years before the launch of Self Lender, Garvey was still working in the marketing business. He had just sold his second company and was “reading papers from CFSI about [how] 1 in 5 Americans have no credit score,” when he started to think about what he would do next in his career. Garvey remembers the ease of applying for credit cards when he was as a young adult in college and now looks at how the Card Act 2009 has changed the application process and made it more difficult for adults under the age of 21 with little or no credit history to obtain credit cards and loans. While many would argue that the Card Act was designed to protect young (inexperienced) borrowers from being trapped by credit companies, Garvey believes the legislation has the potential to hinder young adults who are trying to establish their own credit history.
The list of requirements to become a Self Lender user is short: (1) Must be 18 years of age or older. (2) Must have an SSN. (3) Must have a bank account or debit card. There are a few other requirements in the small print, such as the applicant cannot be blacklisted by ChexSystems (be overdrawn on multiple checking accounts), but for the most part, Self Lender does not want to have too many requirements for their lending program, else it defeats the purpose. Garvey states, in the end, Self Lender is “just trying to help people establish a credit history in a simple way and [is] giving them tools to do it.”
$75 for 60 Point (or More) Credit Score Increase:
Currently, Self Lender is only offering one credit-building loan: $1,100 on a 12-month term. When a customer joins Self Lender, he gains free access to his own credit report and tools for monitoring his credit. It is then the hope of the team at Self Lender that the user will see the value of applying for a $1,100 credit-building loan, which has been boosting other customers’ credit scores an average of 60pts. For a “reasonable” administrative fee of $12 (as one Self Lender user has described), users can apply for a loan and start building credit immediately. After 12 months the customer has paid $1176, and then receives the matured CD with accrued interest for the value of $1,101.10. Garvey reports that as of now, about 95% of users are making on-time payments. Self Lender loans are not for those in desperate need of cash, but a rather desperate need of credit history. Customers are self-motivated to make on time payments, and therefore default rates are very low.
For just under $75 the customer receives better credit history (an average 60pt increase) and an easier and less costly credit future. So how does Self Lender make money? Garvey would argue, while yes, the company is profitable, that end goal for Self Lender is more about investing in people. After paying off their first credit-builder loan with Self Lender, the customer has proven that he is credible to an extent, and can now apply for another loan, credit card or as Garvey puts it, “do something socially responsible.”
Already 2,300 Users and Counting:
The profit comes with greater numbers of clients. In just four months since the public launch, Self Lender has gained 2,300 users. Self Lender believes the number of users will only continue to significantly increase. With Garvey’s marketing background they have been able to build a unique advertising program with companies like Nerdwallet and Facebook. Their hope is that as they build a larger customer base, they will be able to rely more on customer feedback and word of mouth advertising, thus lower their CAC.
Self Lender is currently collecting feedback from all their customers in order to adjust their product and program around the customers’ needs. They rely heavily on the satisfaction of the user, with the idea that they will be able to have a large proportion of repeat customers. They have also recently implemented a referral program, offering $10 for any new client that gets a loan.
Building Credit History for a Healthier Lending Future:
Self Lender has several large investors including Silverton Partners (who gave $1.5million in seed funding) and Kickstart, who believe growth and profit are inevitable. Though the company is based in Texas and currently only partnered with one bank, Austin Capital Bank, they are operating online in 48 states across America. In the next 12 months, they hope to expand their program to cover a greater number of people, as well as offer several other credit-builder loans in addition to their $1,100/12mos term. Garvey stresses the fact that Self Lender is not out to beat the system or cheat people. They are offering a way for people to “take control” of their credit score and also save money in a FDIC insured CD, all in the form of an online loan. This is a lending company that has found a way to turn a profit while helping create responsible borrowers.