What Are Starter Loans?

by Matt McGew - Updated September 26, 2017

A starter loan is a type of loan offered to individuals with limited or damaged credit histories. A starter loan can help you build or start to rebuild your credit history. These loans usually carry fees and high interest rates. As with any type of loan, the specific terms and conditions of the loan will vary from lender to lender. You should, therefore, compare starter loans offered by different lenders prior to committing to a starter loan from any one lender.

Rates and Terms

The terms of starter loans vary by institution. However, because of the credit risk associated with these loans, the interest rates and fees are generally higher than those associated with other types of loans. Starter loans also vary in amount from a few hundred dollars to several thousand dollars. Many starter loans also require you to secure the loan by depositing money in the bank or to have a cosigner who will guarantee repayment of the loan.

Secured Debt

If you do not have a credit history or if you have a damaged credit history, many lenders require you to secure the starter loan. To secure the loan, the lender will require you to deposit the amount of the loan in an interest-bearing account. This removes all risk for the lender as you agree to surrender this account in the event of a loan default. With a secured starter loan, you will continue to make payments on the loan as normal, and the lender will refund the secured account to you after you have fulfilled your loan repayment obligations. Secured starter loans are a good option to help you rebuild credit when you can not qualify for other types of starter loans.

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Automatic Payment

Making regular payments on your starter loan without missing or paying any of the required payments late will improve your credit. To help you make your required payments on time, may starter loans require you to setup an automatic payment. The automatic payment will automatically debit from your bank account for a specified amount on a specified day each month. Some starter loans also allow you to pay the loan through an automatic debit to your paycheck.


Many lenders also charge fees for starter loans. Starter loan fees include application fees, monthly fees, annual fees and late fees. The lender will always disclose all fees to you in the loan contract. It is, therefore, important that you read and fully understand all the fees associated with your starter loan.


About the Author

Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.

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