11:46 13 October 2019
According to Experian, nearly a third of American adults have bad credit. This is a worrying trend, given the many benefits that can be gained from having a good credit score. Now, to qualify for a loan, financial institutions must dig into your credit history to determine your credit score.
There are so many reasons why people take out personal loans. This may include paying insurance, sorting out rent, paying for cellular services, purchasing a car, or even making home improvements. One thing to note is that even with the financial lenders out there that may be willing to grant loans to individuals with bad credit, the interest rates are overly exaggerated.
Fortunately, all hope is not lost as there are various ways to secure affordable loans even with bad credit.
If you’re reading this, chances are higher that you already know what bad credit is. For those who don’t, bad credit is characterized by a situation where an individual has a poor record of paying off their debts, say by always making late payments or defaulting on loan payment terms. Bad credit may also result from poor public account records such as bankruptcy and federal tax charges. Before your loan is approved, financial institutions have to refer to reports compiled by credit bureaus about your credit history and your credit score. Credit scores are gauged on a range of 300-850. In layman’s terms, the higher the number, the better chance you have of securing a loan facility from any given financial institution. In the US, for instance, a credit score below 601 is considered poor to fair. According to FICO, the number is 620 and below.
And if you guessed right, bad credit loans are loans granted to individuals with low credit scores. They may not be the most affordable option out there, but hey, they help to get things done, especially when facing a financial emergency! According to a recent credit review post, your options for finding a lender with the best interest rates are slim when grappling with a bad credit score. The good thing is that there are private lenders in this business, who are willing to provide serve bad credit clients like you without insanely high interest rates and upfront fees. So, if you’re going through a tough situation such as being behind on your rent, you need some cash to foot medical bills or want to repair your car, don’t give up hope just yet.
Here are some sure-fire tips on ways to secure a loan even with bad credit.
This is an option that may somewhat appear tricky yet achievable. Tricky in the sense that you’ll need to find a family member or a friend who’d be willing to take up a personal loan on your behalf on an agreeable payment plan that will work both ways; satisfying the friend/family member and the bank. Albeit uncomfortable, it can be a great option when you have a poor credit rating and the banks won’t get approve your application. Nonetheless, you’ll want to know that although a personal loan from your friends will not in any way help to improve your credit score, defaulting will damage a once solid relationship. To ensure that this doesn’t happen, both parties need to draft an agreement, preferably before an attorney, that spells out the loan payment terms, the date every payment needs to be made, and the loan duration. Finding a friend you can rely on in your trying moments is a way to help smoothen your situation.
Also known as Home Equity Line Of Credit, these are loans granted to homeowners with bad credit against the equity of their home. In a nutshell, the home equity acts as collateral. HELOC loans will offer borrowers a lot of flexibility, but as with anything in life, they have their own sets of limitations. Needless to mention is the fact that you may be at risk of foreclosure if loan payments are not made in time or if you default on the loan. The total value of the loan will be determined by the current market value of the home because, in essence, that’s what you’re borrowing against.
In this era, it’s become extremely difficult to qualify for loan facilities with bad credit. But if you consider yourself as having a steady income, you have better chances with the help of a cosigner. Like a loan from a family member or a friend, they agree to all the terms of the loan and guarantees that they’ll pay off the loan if you don’t. However, unlike a loan from a friend, you both need to be present when applying for a cosigned loan, whether electronically or physically. Most financial institutions are willing to approve your loan request if you bring in a good cosigner. The best thing about this option is that it attracts lower rates, offers flexible payment plans and the fees attached are lower.
These are the types of loans granted by investors and individuals with extra cash to those with bad credit. It’s a relatively new option that offers loans at a lower interest rate. As long as you have a steady income source and you can provide proof, you can qualify to get an affordable loan even with bad credit.
When you have bad credit, borrowing against your retirement account is also a feasible option but one that is characterized by higher interest rates and penalties associated with early withdrawals. Additionally, the most you can borrow from your retirement fund is 50% of the vested balance amount. But then again, if come to think about it, the interest will be paid into your account and so you have nothing to lose!
Now, life happens and various obligations must be met. Without an emergency fund at your disposal, the need to borrow comes in. However, getting approved for a loan by a conventional lender can be an extremely frustrating process. Luckily, the pointers highlighted below can help you find that financial assistance you so desperately need, with or without bad credit.