What You Need To Know About Bad Credit Loans
Are you struggling with bad credit, and wondering who’s going to lend you money for that emergency that has just popped up?
Well, if you have a not-so-attractive credit score, chances are you will have a difficult time getting a loan. It is, however, not impossible.
While it’s important to have some savings for a rainy day, the reality is that maintaining a healthy saving culture is quite challenging for most people.
Studies have revealed that many Americans have less than $500 in their savings accounts and nearly half have a FICO credit score of below 620 which is considered bad credit by most lenders.
I know you are now asking yourself “what next?”
Let’s first discuss how bad credit reduces your chances of getting a loan.
How bad is bad credit?
To lenders, bad credit is an indication that you are always late in paying your debts, or you don’t pay them at all. No lender will want to borrow out money without a guarantee that they’ll get it back.
For many lenders, a credit score of above 630 is attractive and a major requirement before approving your loan request. Anything below that is considered less than perfect. Borrowers with good credit ratings don’t have difficulty in getting loans. In fact, they’ll get them at very affordable interest rates because their delinquency rate is low.
If you have bad credit history, getting a loan may be a daunting task. Some lenders may choose to ignore your bad credit, but they’ll charge you high interest to cover the risk. To them, you are a high-risk borrower and chances are you may default on payments like before.
Conventional lenders like banks and credit unions, however, may not approve your loan request leaving you with the option of using peer to peer lending services or other online lenders. These lenders are more lenient and may base your eligibility for funding on your ability to repay the loan rather than your credit history.
So how do bad credit loans work?
Think of bad credit loans as loans for people with weak or no credit scores.
These loans provide relief for people with bad credit when they are stuck in a financial bind. Most bad credit lenders don’t perform hard credit checks making it quite easy to get funding.
The loan amount you are eligible to borrow will largely depend on your income, and capacity to repay the loan. All you need to do is produce proof of a stable source of income, have an active bank account, be at least 18 years old, and have active contact details.
If you are working with a direct lender, you’ll fill out their loan application forms either online or in-store and attach the necessary documentation. The lender will then review your loan request and if you qualify for funding, they’ll let you read their terms and conditions. You’ll then append your signature to the loan agreement form (that is if you agree to them) and the funds will be credited into your checking account on the same business day.
One major benefit of bad credit payday loans is that they are readily available, and even with bad credit; you can still get funding as fast as you need it. Despite being lucrative, they are very expensive and may plunge you into more debts. A closer analysis will reveal to you how worse off these loans can leave you.
Types of bad credit loans
We have two types of bad credit loans; secured and unsecured.
- A secured bad credit loan
This is a personal loan that is secured using a valuable asset as collateral.For you to be approved for such loans, you’ll have to put down the title of your vehicle in the case of a title loan or even your home equity for mortgages. If a borrower defaults on payment, the lender sells off the asset to recover his money.Most bad credit pay loans are secured because you’ll have to write a check as security that when payday arrives you’ll repay the full amount plus interest.
- Unsecured bad credit loans
These are short-term loans that are issued on the premise of a promise by the borrower that he’ll repay the full loan amount according to the lender’s terms and condition.Failure to repay the loan may lead to legal proceedings initiated on the borrower or their details forwarded to debt collectors.Typical examples of unsecured bad credit loans are student loans, personal installment loans, and credit cards.
Other alternatives to bad credit payday loans
These loans may seem like the best thing when you are stuck, but the reality is that they are quite exorbitant. Their APR is way above your typical loans.
Instead of relying on this form of funding, you can also check out these alternatives:
- Borrowing from friends and family
Your friends or family members can lend you money at a low interest rate. You’ll enjoy the flexibility of repaying the loan at your own schedule.
Just make sure you keep your promise because you risk losing your friends, and regaining their trust may be difficult.
- Low interest personal loans or installment loans from banks or credit unions
You can build your credit score and borrow funds from banks. All you need to do is avoid taking several short term loans that you can’t repay on time.
You could also contact credit counseling agencies that’ll help you budget and get you back on the right financial track.
- Get somebody to co-sign a loan for you
If you are having difficulty getting approved for a loan, ask a trusted friend to cosign a loan for you. That way, you can get the funds without worrying about your bad credit.
Caution to borrowers
Use this mode of funding for short-term financial emergencies only. Also, ensure that you work with reputable and licensed lenders.
To get connected to reputable lenders, fill out our online loan application forms today and let us take the search for affordable lenders off your back.