Category Archives: Personal Finance

Bad credit represents an incredibly sticky label – one that over 50% of Americans have struggled to shake off when the time came to apply for a loan.

By now, you have likely seen lenders advertising loans designed specifically for individuals struggling with bad credit. For anyone who has gone through the emotion turmoil of being denied a loan in the past, this can feel like a blessing, but it is crucial that you give yourself the time to consider the commitment carefully.

Being realistic about the situation does not disqualify the option of a bad credit loan – far from it. But you must go into it with a judicious and well-informed state of mind.

Read more below.

Why is Credit So Important?

When you apply to a lender – whether it is, say, for a car, home equity, or a payday loan – they will want to know a little more about you and, more specifically, your financial background in order to assess whether or not you are a viable candidate. Effectively, they want to ensure that you will be likely to repay your loan on time.

Taking a look at your credit history offers one of the most accurate forms of assessment.  Your credit score is a number (typically between 300 and 850) which is calculated based on the ways in which you have utilised credit in the past, and your history of repaying lenders on time.

Any missed payments or defaulted loans will reflect poorly on you, and lower your score, while utilising credit, meeting payments on time, and successfully repaying lenders will serve to keep it in the green, and make lenders much more likely to offer you subsequent loans when the time comes.

What are Bad Credit Loans?

Bad credit loans are designed specifically for individuals whose credit scores are suboptimal. While the interest rates and associated fees are likely to be higher, finding lenders who offer the best loans for bad credit will enable you to source the money you need in spite of past struggles.

Every lender will have their own prerequisites for offering loans, and some will simply refuse to accept you if your credit score sits below their minimum requirement. This can be incredibly disheartening, and make you more wary of lenders who do offer bad credit loans.

In reality, while the terms may not be quite as attractive for those with bad credit – and there are those who cannot be trusted – some lenders do offer safe and reliable options for those with blemishes on their financial histories. 

Managing a Bad Credit Loan

If you are planning to take out a bad credit loan, ensure that you read through the small print carefully before committing yourself to the terms and conditions. It is crucial that you feel confident in your ability to meet your repayment plan; remember that, just because the loan is designed for someone with your credit history, does not mean that your current financial position and budget can handle the payments.

Treat a bad credit loan like a regular loan. Since your ability to handle loans offers one of the most significant resources for calculating your credit score, any late or missed payments will have a negative impact.

Remember that, while the loan is tailored to accommodate your credit history, it is not tailored to accommodate history repeating itself. See it as a new opportunity to make a lasting change on your financial status, not an alternative.

Don’t Let Yourself Get Exploited

Unfortunately, there will always be individuals seeking to take advantage of those in shaky financial situations. People suffering from bad credit and poor personal finances present a significant opportunity to loan sharks and scammers ready to lock you into an unfair and potentially illegal situation.

Don’t jump at an attractive offer without doing your due diligence.

• Are the reviews positive and genuine?
• Does the offer seem to be in accordance with your credit score, or is it too good to be true?
• Did you approach them first, or did they call you up out of the blue?
• What state are they registered in?
• Are they doing their due diligence, too?

Bad credit loans, when reliable and fair, offer a fantastic lifeline for borrowers with less-than-ideal histories who are looking to improve their score. When rushed into, or targeted to exploit financially-vulnerable people, they are a risk not worth taking. Keep this in mind, and endeavour to protect your finances before jumping.

At a certain point in your life, you may need to get a loan. Whether it’s for a new car or a new home, you need loans to cover funding gaps. Loans aren’t all bad. As long as you know how to manage your debt, loans can help you out. No wonder so many people take loans to improve their lives. However, before you get a loan, you need to know what a credit score is and how your application for a loan is evaluated.

What Is A Credit Score?

In the banking industry, you have a reputation. It’s reflected in your credit score. Banks, credit card companies, and other lenders get a first impression about what kind of borrower you are through your credit score. So, what exactly is a credit score and why is it so important?

A credit score usually ranges from 300 to 850 and reflects the creditworthiness of a person. The higher your credit score is, the more creditworthy and attractive borrower you are. Each person has a credit score that’s based on that person’s credit history. Credit history includes all your repayment history, total debt, credit card activity, and the number of open accounts. Lenders usually use this metric to arrive at the probability that a person will pay their debts on time.

However, what if you have a bad credit score? Does that mean that you can’t get any more loans? Well, this isn’t the case. Some lenders accept creditors with low or bad credit score and provide loans for bad credit.

How To Get Loans With Bad Credit?

Even if you have a bad credit score, there are opportunities to get loans. Here are some ways you can get loans despite having a bad credit score.

• Apply for Payday Loans

One of the ways to get bad credit personal loans is through payday loans. Payday loans are very short-term loans given based on an individual’s income. Payday loans don’t usually ask for many documents. Moreover, since the loan only lasts around 30 days, they lend to individuals with lower credit scores.

However, because of the higher risk and immediate processing, payday loans usually charge a premium when it comes to interest rates. They don’t ask for any collateral. They also offer fast approval as some payday lenders allow onsite applications and approvals.

• Get a Loan through Pawnshops

Many people with bad credit history usually go to pawnshops to get loans. In pawnshops, you usually put up jewelry or gadgets as security. The pawnshop lends you money depending on the value of the asset that you decide to pawn with them. For getting your money, you must leave the item with the pawnshop. You can only claim the item back once you pay back the money that you borrowed. If you don’t pay it back, the pawnshop can put your pawned item for sale to recover the outstanding amount.

• Obtaining a Secured Loan

If you have a bad credit score, you can show lenders a bit more promise if you obtain a secured loan and put up collateral. Collateral is any kind of asset that the lender will accept as security for the loan. It can be in the form of real estate, vehicles, bank accounts, shares, insurance policies, collectibles, gold, or other metals. If you default on the loan repayments, the lender can go after the assets that you put up for collateral.

This gives lenders more comfort in lending to you even if you have a bad credit score because they can seize the collateral and put it up for sale to recoup some or all of their losses. It serves as a protection for your lender in case you cannot pay them back for whatever reason.

In addition to giving comfort to your lenders, secured loans can also get you better interest rates because the lender bears less risk. However, if you default on the loan or miss a payment, you risk losing the asset that you put up for collateral. So, be sure to weigh the advantages and disadvantages of this option. Go for this type of loan only if you’re sure that you’ll be able to honor your repayment commitments from time to time.

• Have a Guarantor for the Loan

When you have bad credit, banks and lenders can be skeptical about lending to you. Fortunately, if you have someone with good credit standing to back you up, lenders and banks will be more lenient while considering your loan application despite your low credit score. These backers are what you call guarantors in banking terms.

A guarantor is someone who promises to repay the debt in any case the borrower misses out on a payment or completely defaults. On top of that, guarantors can also put up their assets as collateral against the borrower’s loan. This assures the lenders that your loan will be repaid even if you miss out on your payment and will give them more comfort in lending money to you.

• Check Out Informal Lenders

Aside from banks, you can also check out informal lenders – those who don’t require extensive background checks. These are credit unions, cash loans, instant loans, online loans, and emergency loans. These kinds of loans usually provide fast approval and disbursement with no minimum credit score requirement.

All you need to do with these lenders is to provide a valid ID and fill up an application form. With online loans, you don’t even have to leave your home to apply for the loan. You can just go online and fill up an application form on their websites. Then, you need to upload the required documents. After a few minutes, a company representative may call you for some data verification. Within minutes, you’ll get a notification about whether or not you’re approved for the loan. Once approved, your funds are deposited into your account the next day. It’s as easy as that.

The disadvantage with informal lenders is the higher interest rates that they charge because of the convenience and leniency that they offer. It’s also very important to remain cautious when it comes to informal lenders. Do your research and subject the lender to proper due diligence before you decide to take a loan from them. Some of them may not be legal and may lend you ill-gotten money as part of their money-laundering operations.

• Reach Out to a Friend or Family

If the above alternatives don’t fit your preferences, you can always reach out to a friend or family and take out a loan with them instead. Since they know you better, you may be able to get a loan from them more easily. Your credit score won’t matter and you can bargain for a lower interest rate. They may also be more lenient on requiring you to get a guarantor or collateral as security. Of course, you’ll have to tell them the reason for your bad financial situation. So, you must be comfortable with that.

• Try to Increase Your Credit Score

Generally, you should try to increase your credit score so that your chances of getting a loan become higher. One of the ways to build your credit score is by applying for a credit card and holding a bank account.

When you apply for a credit card, make sure to choose one that has a good reputation.  Once you get approved, use your card sparingly and only on necessary purchases. Then, make sure to pay your credit card bills timely and in full. This will surely help improve your credit score.

Having a bank account also builds your credit score. This shows creditors that you intend to build your savings. However, you need to be careful about this as well. If you open multiple bank accounts, you may lower your credit score. On the other hand, if you have a checking account and your check bounces, this will also adversely impact your credit score.

You should also be knowledgeable about how your credit score is computed. These are just some of the factors that affect it:

• Payment history – timeliness and accuracy (35%)
• Outstanding debt balances (30%)
• Length of credit history (15%)
• Credit mix (10%)
• New credit (10%)

As you can see, the factor that has the biggest impact is your payment history. With that in mind, make timely payments moving forward. Don’t miss a payment by setting up reminders on your phone or planner. Avoid being a buzzer-beater when it comes to payment deadlines. Instead, make it a habit to pay your bills before the due date.

Conclusion

Having a bad credit score doesn’t mean that you can’t get loans. As you can see, some lenders take into consideration your bad credit history and still lend you money. They’re willing to take on the higher risk by lending you money at a higher interest rate. So, when you do get approved for a loan, you better manage your debts well so that you can start building your credit score again.