With the number of growing credit cards, it is becoming difficult to manage some of the huge expenses. If the recent research says, more than $1 trillion is the debt balance that the Americans are expected to pay by the end of this year! The number is simply growing. The consequences of this are much of the population is falling to the bad credit segment. When half of the amount is going into the credit card payment, there is obviously no amount left for sudden expenses.
This day getting money has become simpler. Whether one needs a huge chunk of money for a sudden expense or paying off the debts, there are several ways to cope with it.
One of the interesting ways of borrowing money is the bad credit loans. Often reputed sites offer these loans with longer terms and offer larger amounts with APRs up to 125% lower for those who have bad credit.
- Understanding bad credit loan
Bad credit loan is a personal loan. It is offered to borrowers who do not have a strong, bad and cannot get any credit from any institution. For such borrowers, there are various kinds of financial institutions like credit unions or banks who are ready to offer Quick bad credit loans.
There is no doubt that these loans are expensive. The rate of interest is high. In order to adhere to the FICO (Fair, Isaac, and Company) score, a borrower’s score must be above 630 to be into the good credit score. This means anything below 630 is considered bad.
There are different ways to understand the score. For instance, the borrower’s bank account or the credit card statement will help know the credit score.
Ideally, those between the credit score of 850 to 720 are regarded as great credit. While a credit score of 550 is bad credit. Any number below 550 is a poor credit line. Bad credit tells the lender how much you are in debt. It lets the lender know the history of how a borrower is being paid off his debts. Whether the borrower will be in a position of pay off the debt or not? All this and many more questions run in the minds of a lender while lending the money to the borrower. This is probably one of the reasons why bad credit loans are sanctioned at a higher interest rate.
- The options available for borrowers with bad credit scores
It is not that a borrower with bad credit cannot get loans. But as mentioned above, the loans are given at a higher rate of interest. There are two types of bad credit loans that a borrower is eligible for.
- Secured loans-
These are the loans where the banking institution looks forward to some kind of valuable item as collateral. These items could be in the form of mortgages, pawnshop loans, car title loans etc. The items for the collateral could be a car, or home, jewelry or any other item that may be equivalent to the loan amount. It is taken as collateral for in the event of non-repayment of the loan amount, the items can be seized. The amount received on selling the collateral is then taken to recover the lost amount.
- The unsecured loans-
Under this kind of loan, the lender does not take any collateral but the borrower has to sign a contract that states he must adhere to the terms and conditions of the loan. On the failure to repay the loan amount, a collection agency or legal actions are used.
Thus, a bad credit score borrower can opt from Payday loans to title loans, cash advances or bad credit installment loans.
- How to look for a lender who can provide with a bad credit loan
- The lender should offer bad credit installment loans
When a borrower goes to borrow an amount, he or she should be allowed to pay the amount in easy installment form. This can be for a longer term. It becomes easier for the borrower to pay in easy installments.
- Borrow a loan amount that is repayable
One of the strangest mistakes that most of the borrowers do is to borrow a loan amount beyond their repayable capacity. Regardless of the fact how tempting the offer for a bad credit loan may be, sticking to one’s repayable capacity is important. Failing to do so can often make a borrower fall prey to re-borrowing and extending the life of the loan.
- Avoid falling prey to predators
The market is buzzing with predators that with false promises make people with bad credit suffer. The right way to know if your lender is socially responsible or not is to see when he or she checks your credit score. Also, opt for a soft credit check and not the hard credit checks that remain in the credit report for up to 24 months.
- Choose a flexible term and plan your own repayment
When there is a choice of selecting the terms and repayment structure, it is often recommended to avoid high APRs (Annual Percentage Rate). When you opt for short terms, the APRs are high. It becomes difficult to make payment on time hence.
- Always update the credit score to the credit bureaus
Bad credit loan means the borrower has had a bad history of non-payment of loans or delayed payment of loans. But when the repayment is done for the bad credit loan, it is best to see that the update at the credit bureaus is made. This will help improve the credit score for future needs.
Whenever you seek for a bad credit loan, make sure the lender is from a reputed company. Although getting a loan is not a problem, but it is advised to go for bad credit loan only when there is a requirement for emergency funds.
More articles coming on this. Stay tuned for more updates.