Can a Personal Hybrid Loan Help Build Credit?

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When you hear about hybrid loans, home mortgages probably come to mind first. And for good reason: hybrid mortgage loans are a common type of hybrid loan. But they’re not the only kind. Below, we’ll dissect what a hybrid loan is, where they pop up, and why you might be interested in applying for one.  

What is a hybrid loan?

Also called adjustable loans, a hybrid loan is any loan that combines fixed and variable rates into one loan. With a fixed-rate loan, you pay the same interest rate for the life of the loan. By contrast, a variable-rate loan’s interest rate may fluctuate with market conditions. 

But in a hybrid loan, these don’t occur at the same time. Typically, a hybrid loan begins as a fixed-rate loan. Then, at a predetermined date – five years, for instance – the rate will transition over to a variable schedule. 

How can a personal hybrid loan help build credit?

A personal hybrid loan can help you build your credit in several ways. For instance:

1. Timely payments

When you first apply for new credit like a loan, your credit score may drop a few points. However, making on-time payments usually raises your score.

2. Diversification of credit types

Your credit mix (the number of different types of credit you have) makes up 10% of your FICO® score. When you add a personal hybrid loan, you’re adding another type of credit.

3. Length of credit history

Lenders like to see a long, positive credit history. If you have no credit, even a short-term loan will help you start building that history.

When should you use a hybrid loan?

Hybrid loans typically show up as home mortgages. But in recent years, other kinds of hybrids have popped up, particularly student loans. A few lenders also offer hybrid personal loans. 

Typically speaking, a hybrid loan makes sense if you:

  • Plan to refinance your loan when the variable rate kicks in
  • Think you’ll repay the loan amount early
  • Want to secure the low introductory rate when your loan balance is highest

If you consistently make your payments during the fixed-rate period of the loan, you may be able to increase your credit score, too, before the variable rate begins. In that case, it might make financial sense to refinance the loan before the variable-rate portion begins, as long as you think you might qualify for a fixed-rate or variable loan rate that is lower than your current mortgage.

A hybrid loan might fit your needs, but it’s smart to carefully consider the requirements of any loan you take out to make sure you can make the monthly payments. Keep track of the timeline of a hybrid loan so you aren’t surprised by an increase in the interest rate.

Pros and cons of hybrid loans

Hybrid loans may let you capture the best perks of both fixed- and variable-rate loans. However, they may also carry downsides for you. 

Pros of hybrid loans

  • Often come with low introductory interest rates
  • Possibly lower initial interest rate than with traditional fixed-rate loans
  • Payments may go down if the market rate drops
  • Potential for lower interest rates compared to traditional loans

Cons of hybrid loans

  • Your variable rate may be much higher than the fixed rate if the market rate increases dramatically
  • Harder to budget and plan for repayments with variable rates
  • The fixed-rate portion of the loan won’t go down even if the market rate declines 

Alternative options for building credit

If you’re building credit, it might help to pursue other strategies, such as the following:

1. Credit-builder loans

These loans are designed to help you build a positive credit history. An example is the Credit Builder Loan offered through MoneyLion WOW membership.1.

If you are working on building up your credit or improving your credit score, MoneyLion is here to help! By opting for MoneyLion’s WOW membership, you can access exclusive tools to help take control of your financial well being. One of the most powerful being the Credit Builder Loan from MoneyLion.

MoneyLion’s Credit Builder Loan is a smart way to help improve your credit while paying off your debt. By improving your credit score, you could qualify for lower interest rates on future loans or refinancing options. And by paying off your Credit Builder Loan loan on time, you can reduce your debt-to-income ratio, which could also work towards enhancing your credit score.

Join MoneyLion WOW and apply for up to a $1,000 Credit Builder Loan with a competitive rate and no hard credit check. You’ll also unlock the full suite of MoneyLion WOW’s exclusive features, including cashback2, VIP deals and discounts3, and added benefits to your favorite MoneyLion products.

2. Secured credit cards

Secured credit cards require a cash deposit upfront, but they’re a great way to start building a credit history if you don’t qualify for traditional credit cards.

3. Authorized user on someone else’s credit card

If you’re an authorized user, it shows that you can manage credit responsibly. Over time, that may improve your score. 

Personal Hybrid Loans: One More Great Way to Build Credit

Building credit can be challenging, but when you have a plan in place, you’ll be well on your way. And when you join MoneyLion WOW, you gain access to helpful tips and exclusive offers to help you reach your credit goals.


How does a personal hybrid loan differ from a traditional loan?

A traditional loan typically disburses money as soon as you need it and comes with a fixed interest rate. Hybrid loans start with a fixed rate, but they switch to a variable rate after a certain point.

Can a personal hybrid loan be used for any purpose?

In many cases, yes. Some lenders may want to know what you intend to use your loan for.

Can I get a personal hybrid loan if I have bad credit?

It depends on the lender. Some will be willing to extend you a loan even if you have poor or non-existent credit.

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