2020 Self (formerly Self Lender) Review
Let’s face it: in today’s society, credit is important. Whether you want to buy a car, get a new mobile phone plan, own a home, or even rent an apartment, your lack of credit could prove problematic. Making matters worse, establishing credit can be a bit of a Catch 22 and some popular options for those looking to build credit, such as secured credit cards, might accidentally tempt cardholders into spending.
That’s the type of scenario Self (formerly known as Self Lender) is hoping to prevent. Instead of tying credit to often unhealthy financial products such as credit cards, this service allows users to take out a credit-building loan — or, as they call it, opening a “Credit Builder Account” — that teaches them how to save money on a monthly basis. That said, these loans do come with their own set of costs that need to be considered.
So, are Self loans worth it? Let’s take a look at what the company has to offer.
What is Self (formerly Self Lender)?
First of all, I have to note that I haven’t personally taken out a Self loan. I actually first encountered Self at 2018’s FinCon Expo and was pretty intrigued by the premise. Put simply, the company allows borrowers to take out a loan but, instead of receiving the money in a lump sum upfront, they keep the funds in the certificate of deposit account (CD). Not only does this help individuals who may not have established credit start to build a payment history but the benefits of the CD component are two-fold: for one, it helps borrowers learn to save instead of spend and, secondly, it enables them to earn interest on their savings.
Self is now available to borrowers in all 50 states. Additionally the company partners with Sunrise Banks, Lead Bank, and Atlantic Capital Bank. These partnerships mean that funds deposited in CDs via Self are FDIC insured.
How do I take out a Self loan?
Like I said, I haven’t actually taken out a Self loan for myself — however I did walk through the application process to see what the experience was like. But before we get there I should mention there are a few requirements borrowers must meet. Their site notes the following criteria for applicants:
- Must have a bank account or debit card or prepaid card
- Must provide a valid email address and phone number
- Must provide Social Security Number
- Must be a permanent U.S. resident with a U.S. physical residence
- Must be at least 18 years of age
To start your application, you’ll (of course) visit Self.inc and click on the “Start building today” button. After this, you’ll be asked to either enter your name and email address or sign up using your Facebook account. Next you’ll also need to create a password for your account and accept the terms of service.
Once the basics of your account are in place, you’ll need to provide more information. This includes your address, phone number, Social Security Number, and date of birth. As mentioned, all of this info is required but, if you have any questions about why a certain piece of data is needed, there’s a short FAQ off to the side you can review, as well as a few other notes throughout explaining how Self will use your information and how they’ll help protect it from others.
The next step is to select one of four loan options, with payments ranging from $25 to $150 a month and terms of either 12 or 24 months (the $25 and $35 a month loans are 24 months, the others are 12). You can view different options by toggling between various payment figures. Self also does a good job of breaking everything down, as you can see from my screenshot below:
You can actually access a similar tool by visiting the Self Pricing page as well (and we’ll take a much closer look at pricing in the next section).
Who does Self report to?
Since the main goal of Self is to help individuals build credit, it’s important to note that the company does report to all three major credit bureaus (Equifax, Experian, and TransUnion). This is key as creditors may pull reports from any or all of these bureaus, making it imperative that you establish credit with each. At the same time Self notes that they do not request a “hard pull” of your credit, so applying for the loan won’t damage any credit you already have. In fact Self reports that customers “have seen an average increase of 45 points to their credit score, with new-to-credit users reaching an average score of 670 starting from nothing.”
How do I make payments on my loan?
According to Self’s help section, borrowers can either make one-time payments toward their loan balance or sign-up for autopay. These payments can be made via a bank account or by debit card. Those looking to save money should opt for the former option as debit payments will incur a convenience fee of $0.30 + 2.99%.
It’s also worth noting that, since the point of Self loans is to build your credit, you’ll want to ensure you’re making timely payments. The company notes that any payments made 15 days or later after their due date will be subject to a late fee equal to 5% of the monthly payment. Worse yet, payments that are 30 days late or more will be reported as “late” to the three credit bureaus — a mark that can stay on your report for up to seven years. The moral of the story is to make sure you make your loan payments on time.
Can I pay off my Self Loan early?
If you’re looking to pay off your credit builder loan early, there’s both good news and bad news. First, Self notes that you may pay off your loan early without penalty or fees on their end, but they note that “You will receive the loan deposit amount, plus accrued interest, minus any amounts due when the certificate of deposit matures after 12 or 24-months.” On the other hand, if you want to remove your savings from the CD before it’s matured (in other words, before the full term is completed), you may be subjected to an early withdrawal fee. Luckily another FAQ entry on the Self site says these fees are “less than $5” depending on the size of your account.
With all that said, the bigger disadvantage of ending your loan early is that you won’t receive the full benefit of the credit building loan. Since payment history makes up 35% of your FICO credit score, having on-time payments for a longer period of time may be beneficial. Because of this you’ll want to give extra consideration to whether or not it makes sense to terminate your loan early.
Self Visa Credit Card
In addition to their Credit Build Account, Self has introduced a secured credit card for customers.
Qualifying for Self Visa Credit Card
The first requirement for obtaining the credit card is to have a Self Credit Builder Account. Then, there are three main requirements for eligibility:
- Have $100 or more in savings progress
- Your past three payments must have been made on time
- Your account must be in good standing
It’s worth noting that there is no credit check when applying for the Self Visa Credit Card. Instead, as long as you meet these requirements, you’ll be approved. Also, while a Credit Build Account is required to open a Self Visa Credit Card, users will be able to keep using their cards even if they close their accounts. However, since it is a secured card, the security deposit made will continue to be held.
How the Self Visa Credit Card works
Once you’re eligible for the Self Visa Credit Card, you can determine how much of your savings you want to use a security deposit for your card. Note that the size of your security deposit will be the limit on your card. This limit can also be raised overtime as your savings grow.
Just like a normal credit card, you’ll be able to make purchases with your Self card, paying off your balance after the billing cycle closes. Also just like a regular credit card, users will incur interest charges if they don’t pay off their full balance each month. Similarly, if you fail to meet the minimum payment on-time, you’ll be hit with a late fee.
One random thing to note: the Self Visa Credit Card does not work for international transactions. However, it will work online (presumably only for US-based transactions) and in all 50 states.
Regarding your credit
When used responsibly, this secured credit card can be another way for you to build credit. That said, it’s vital that cardholders pay close attention to how they use the card. For example, while Self allows you to obtain a card with a limit as low as $100, that means that carrying a balance higher than $30 at a time would show as a high utilization rate (it is recommended that cardholders utilize less than 30% of their limit — although lower is always better). Also, it goes without saying that you’ll need to make on-time payments in order to establish positive history and, thus, raise your scores.
The Cost of Self Loans
It would be great if you could take out a self-loan, build credit, and save money at the same time, while not paying a dime extra. Unfortunately that’s not quite realistic and Self does need to turn a profit in order to provide their service. Therefore there are some fees and expenses associated with their loan products that you need to know about.
Before we get into the specifics of these fees, here’s a look at how Self’s different loan options break down:
|Monthly Payment||# of Months||Activation Cost||Total Loan Cost||Amount Paid Out||Loan Interest %||APR|
First, to obtain a Self loan, you’ll be required to pay a one-time, non-refundable “administrative fee.” You can think of this sort of as an origination fee that most traditional lenders would charge. The cost is currently $9, although it has fluctuated in the past.. These fees can be found in the “activation cost” column in the table above.
On top of the administrative fee you’ll pay up front, Self also charges interest. Because of this the money you take home after your loan/savings period is complete is less than the total you paid over the life of the loan. For example, as you can see above, a year of $48 monthly payments would mean you paid a total of $576 ($585 after the $9 administrative fee). Of that, once your loan is paid off, you’d receive $539 plus whatever interest your CD generated. As a result this particular loan option works out to a 12.44% interest rate.
One unique aspect of Self’s loan model is that, while you’re be paying interest on your loan, you’ll also be earning interest on your savings. That’s thanks to the CD element of the loan where your money is kept. Sadly I wasn’t able to find an estimate of how much this interest could total. To be fair that’s likely because rates for certificate of deposit accounts do fluctuate based on a number of factors. One thing’s a near certainty, however: this earned interest won’t completely offset the amount paid to Self. So while it’s a nice thing to have, I’d recommend anticipating the full cost of the loan and then factoring in this as an added bonus.
Final Thoughts on Self (formerly Self Lender)
There’s no doubt that Self is a clever product that addresses a real need. While many looking to build credit are likely to turn to credit cards or more traditional loan products, Self’s loans seek to instill better financial habits in borrowers. For that, the company should definitely be commended.
That said, it’s important to consider all of the fees and expenses that come with Self’s loan options as some come at a total cost of more than $100. Such a total may not be much when compared to other loan products — especially those aimed bad or no credit customers — but they’re worth noting nonetheless. Plus, unlike most loans where paying off your balance early may be a good thing, the opposite seems to be the case with these credit-building loans.
Ultimately, although I’m not in the market for such a loan myself, I’m definitely interested in Self and the loan model they’ve created — especially with the addition of the Self Visa Credit Card. Despite the necessary fees, I could easily see their products being a net positive for many borrowers wanting to improve their financial standing. So if you’re hoping to build up your credit, I’d say it’s definitely worth looking into what Self has to offer.
Also published on Medium.