Cash 1 Blog
What Are My Loan Options for Bad Credit?
Unless you are very unfamiliar with what it takes to get a loan, you probably understand that having a bad credit score hampers your chances of getting any funds. When you need to borrow money to take care of emergencies, all hope is not lost because there are options for poor credit that you can use. Read on to learn everything you need to know about your loan options even if you have bad credit.
How Do You Know If Your Credit Score is Bad?
If you are reading this, you probably know that your credit score is low. FICO and other credit rating companies have different scoring systems to determine your credit scores. However, FICO credit scores are rated from 300 to 850, with the lower figure being the worst and the higher being the best.
It's worthwhile to check your credit and understand that FICO scores do not only affect your loan options; they also have a significant impact on other life situations, such as renting an apartment or getting a job.
A few of the factors that affect your credit report include poor or no credit history, dealing with civil judgments, and late bill payments. Once lenders report these issues to the credit bureau, your credit score will decrease because of activity or inactivity, and your chances of getting a personal loan will reduce.
In consideration of personal loans for bad credit, it's essential for you to know what is considered a poor credit score.
Here's the range of credit scores:
760 to 850 – Excellent
700 to 759 – Very good
660 to 699 – Fair
620 to 659 – Poor
Below 620 – Very poor
In most cases, if you have a score below 650, it will be difficult for you to get loans. The lower your credit, the more difficult it becomes to get a loan. The majority of banks and other financial institutions will not grant you a loan and your options are limited.
The Effects of Bad Credit on Loans
Even if any of the aforementioned financial institutions decide to loan you money, bad credit will affect your loans in the following ways:
• Higher interest rates - if you have bad credit, the interest rate for your loan will be higher than loans for proper credit. A bank can charge you an interest rate that is as much as 36%.
• Poor loan terms - some of the most important things to consider when obtaining a loan is the loan term. If you have bad credit, you may have to agree to an inferior loan term. The term could have higher late fees, short repayment periods, and large monthly payment options.
• No approval - for those that are unlucky, their loan application may be denied outright by the loan companies.
Despite all these downsides of having bad credit, do not write yourself off. There are lenders in the industry that specialize in offering personal loan options for poor credit. Therefore, you can get the financial assistance you need at the right time without dealing with any bad terms. You only have to spend some time researching these alternative lenders.
What Does a Bad Credit Loan Entail?
In simple terms, a bad credit loan is a form of financial relief targeted at individuals with low credit scores. Such individuals have limitations on where and how they can get loans; hence, loan options for bad credit are aimed at helping those individuals.
Bad credit loan options are a type of personal loan for people whose credit scores are below 650. These loan options are great for settling medical bills, repairing or purchasing a car, or any other personal issues that arise. Nonetheless, individuals must be cautious when considering loan options for bad credit. Whatever options you are considering, pay attention to the annual percentage rate (this includes the fees and interest), monthly payment option, and the repayment period.
Where to Get Bad Credit Loans
Family or Friends
As they say, charity begins at home. If your trusted by loved ones, you could consider borrowing money from family and friends. This personal loan option for bad credit usually attracts lower interest rates, good terms, and an easier qualifying process. However, if you fail to pay on time or violate the loan terms, you may jeopardize your relationship with the person.
The loan should be strictly considered as business to reduce the possibility of straining your relationship. A legal and written agreement should be made between both parties. The agreement must involve the amount borrowed, interest rate, loan terms, and other essential details.
One of the most viable bad credit loan options is the credit union. Credit unions are all around you - those working with your employers and the ones operating in your neighborhood. These unions may consider your character and offer you a loan regardless of your credit score.
Fortunately, unlike banks, they may charge you as high as 36%, the maximum interest rate of credit unions is 18%. This will save you lots of money, depending on the loan amount you want to borrow. Also, joining credit unions offers you an opportunity to get better loan options in the future.
Online Personal Loan
Online personal loans come from lenders who cater to the needs of all borrowers, including those with bad credit. Online lenders do not charge any application fee, offer loans without prepayment fines, and are very fast in processing your loan application. More often than not, the process of applying for an online personal loan is usually easy and fast as you can get the money you need a few minutes or days after applying. Some of the online loan lenders consider your employment history, college degree, and school attended.
Nowadays, most payday loan companies do not require you to write a physical check. You sign an agreement to allow the lender to withdraw from your checking account on a specific date. You receive the borrowed amount and pay back the loan with interest.
The best payday loan lenders offer an installment loan up to 90 days. This type of payment plan is easier on your checking account and doesn't require you to pay the full amount of your loan the next time you get paid.
A payday loan is considered a short-term loan that can get you up to $5,000. Because of the high-interest rate, you should consider paying off your payday loan sooner than most of the other loan options for bad credit.
You can get a title loan with bad credit using your vehicle title as collateral. Depending on the appraised value of your car, you can get up to $50,000. In most states, you'll need to own your vehicle outright to qualify, and loan terms can range from 30 days to 12 months.
It's important to understand that if you cannot afford the payments and default on your loan, the lenders can repossess your vehicle legally.
Often referred to as P2P lending, peer-to-peer lending works through several online platforms that offer loans to various borrowers. The P2P lending platform may either involve a person or a group of people that is willing to give out personal loans. To explore this option for bad credit, all you need is to go to the websites of any P2P platforms of your choice, post your loan needs, and wait for the investors to evaluate your application. If approved, you can get your loan as soon as possible.
Notably, many of these platforms consider credit scores before giving out loans; however, several other factors are also considered, so your credit score will have little impact on your approval. Many of these platforms utilize different rules, but their terms are usually favorable.
Home Equity Loan
If you own a home and have bad credit, you can use your home as collateral to get a personal loan. This loan option is available for everybody who has a home whether they have bad credit or not. This option is a secured loan, so you can expect the interest to be significantly lower than other options and term to be great too. Similarly, the home equity loan comes with tax-deductible interest.
Regardless of these benefits, this personal loan option for bad credit is quite dangerous. This is because you are at risk of losing your home if you default on the payment. Therefore, the reliability of your income and discipline to repay on time are very important when getting a loan through this option.
The last but not the least bad credit loan option involves getting a co-signer. If you have a family member, friend or colleague with a good credit score, you can ask them to co-sign the loan for you. Your reputation will play a pivotal role in determining whether you will be able to get a co-signer or not. Typically, you are still meant to repay your loan, but if you fail to pay at the agreed time, the co-signer is equally as liable as you are. As a consequence, if you do not want to ruin your relationship with the person and put them in trouble, you must pay the loan on time.
Things to Take Note of While Searching For Bad Credit Loan Options
You should note that this is the right time to start rebuilding your credit score. You can use a secured credit card and other methods to improve your credit score. This will have a positive impact on your finances as time goes on.
Be cautious of unscrupulous lenders. These lenders take advantage of the situations of those looking for loan options for bad credit to offer them loans with bad terms. Such loans will likely put the borrowers in worse financial situations. So take your time to search and review any lenders. If possible, get referrals and deal with only tested and trusted lenders.
Joseph Priebe takes pride in assisting audiences with his articles to help them make sound financial decisions.
With over ten years of experience writing financial content his goal at CASH 1 has always been creating engaging and easy-to-digest information for anyone searching for immediate or long-term monetary solutions.
When Joseph is not writing about personal finance, you can find him photographing the Southwest United States with his 4x5 Graflex Crown Graphic camera. He is based in Phoenix, Arizona.