If you have poor credit, personal loans can be difficult to find, especially in these tough economic times. While it may be difficult, borrowing money when you’ve experienced credit problems is certainly possible. There are “bad credit loans” specifically designed for people who are faced with an adverse credit history. Personal loans of this type are adjusted to the monetary requirements of borrowers with an adverse credit history. These so-called bad credit loans can be obtained with a little online research.
Most money lenders and banks will not approve loans for people with a poor credit rating. This is especially true since the economic crisis and bank bailouts of the late 2000s. Nevertheless, there are some financial institutions still offering bad credit loans. You can get a loan for practically any purpose, such as buying a car, paying off credit card debt, purchasing a home and much more. Of course, most personal loans with bad credit come with higher interest rates because of the increased risk when offering loans to high-risk borrowers.
What Is a Bad Credit Score?
An individual’s credit history is considered “bad” if he or she has been issued credit cards or borrowed money and then didn’t make those payments on time. Repaying loans late or missing payments on revolving credit card debt usually damages your credit rating. The term “credit score” refers to a three-digit number that represents a person’s creditworthiness. A score of 720 or above is considered good, whereas a score of 600 or below is considered bad. If the credit score falls somewhere between 600 and 720, it is considered average.
A person’s credit score is calculated based on factors like repayment history, number of outstanding debts, credit history length and recently opened credit accounts, as well as the types of credit used. An individual is labeled a “high-risk borrower” if he or she is currently in default on loan payments, has excessive outstanding debts, or filed for bankruptcy in the past decade. Bad credit loans, however, offer a glimmer of hope for people who are disadvantaged from having an adverse credit score.
Types of Bad Credit Loans
A bad credit loan is typically offered in one of two types: secured and unsecured. Secured bad credit loans are offered when the borrower agrees to provide equal collateral against the loan amount. Collateral can be anything of tangible value, such as cash, real estate, or a vehicle that has a similar or greater value as the loan amount. Usually, secured bad credit loans offer lower interest rates and lower installment payments compared to unsecured bad credit loans. Unlike a secured loan, an unsecured bad credit loan is money given to the borrower without the need for any collateral or security. Because these loans are granted without security, unsecured bad credit loans carry much higher interest rates, as the lender’s risk is higher.
Loan Repayment Terms
It is commonplace for money lenders to offer bad credit loans with repayment terms as long as five to twenty-five years. However, it is strongly recommended that you arrange for as short a period of repayment as possible. This helps you reduce your financial responsibility and complete the repayment terms easily. By making payments on time, you can improve your credit score and the next time you need a loan or credit, you can get it at a much lower interest rate.
Benefits of Bad Credit Loans
Although a bad credit loan carries a higher interest rate than a normal loan, it is one of the best ways to get credit for those who have bad credit. Another significant advantage is that a bad credit loan – and paying it back properly – is an ideal way to improve your damaged credit rating. You can improve your credit score dramatically by making payments in a timely way and thus avoiding late fees. By improving your credit score as a borrower, you can receive future loans at a lower interest rate.
Where to Find Bad Credit Loans
Bad credit loans are made available through a number of money lenders and financial institutions. Several of these bank and financial companies offer bad credit loans online. Finding online applications for bad credit loans is relatively easy, but what you need to do first is plenty of research and find one that best suits your needs. Interest rates on bad credit loans depend solely on your credit score, so knowing this will help you compare quotes. You can request loan quotes from bad credit lenders online. Above all, you need to read the fine print and understand the interest rates, repayment terms, and monthly payment amount needed to repay your loan. Compare the quotes of different lenders before selecting one which fits your needs. Remember, getting and managing a bad credit loan is the first step toward improving your poor credit score. If you’re smart, you’ll be responsible in taking that opportunity to rebuild your credit score and restore your financial well-being.