Bad Credit Loans: 6 Steps to Financial Freedom
There are many different situations you may find yourself in where you need a personal loan. Unplanned expense and credit card debt are two of the most common. However, if you have a bad or mediocre credit score, your chances of being accepted for a loan are far less. In this article, we explore your options. The encouraging news is that bad credit loans and installment loans are available to you today. You just need to know how to apply and how to increase your chances of being accepted.
Being accepted for a loan with a credit score of less than 600 is more difficult, but it is certainly not impossible. It will require some research and patience. You will actually find that there is more than one type of bad credit loan available to you. Choosing the right one is vital. So, first things first, gather your personal information together. You must know where you stand, and this means reviewing your credit score and report. There are plenty of places online where you can check your credit score for free. Bad credit is usually considered to be any score under 600, good credit being anywhere between 700 and 850.
Improve your score
To heighten your chances of being accepted for installment loans and bad credit loans, steps must be taken to improve your credit score. You can do this by reviewing your credit report for errors, and where possible, reducing or consolidating existing debts. Every time you apply for loans, your application will trigger an inquiry into your credit; a series of such hard inquiries can actually lower your score further. So, don’t just go online and start applying for all the different loans you find. Rebuilding credit before applying for a personal loan will increase your chances of being accepted.
Talk to your credit union or bank
Once you have reviewed your credit score, you will be able to get an idea of which lenders will accept you. Your current bank or credit union is a good starting point when searching for bad credit or installment loans. This is because they will already have an understanding of your financial profile. In general, credit unions offer more flexibility on lending than standard banks when it comes to small personal loans.
Prove you can meet repayments
Lenders need to gurantee that you can pay back the money you borrow. Offering your proof of income, or a cosigner will improve your chances of being accepted for a short term loan. A cosigner is also known as a guarantor, and is someone who will make your repayments for you, should the time arise that you are unable to do so yourself.
To find the best bad credit loans that are suited to your needs, you should always shop around. Only apply for loans from trusted lenders. Remember that loans that are geared towards people with bad credit often have extremely high interest rates and hidden fees. Such loans, often referred to as payday loans, should be avoided at all costs. So, let’s move on to take a look at the types of bad credit loans and lending facilities available.
Types of loans
Personal loans from banks and other reputable financial institutions are lending facilities that are usually paid back in monthly installments. These are also commonly known as installment loans. Secured personal loans are one particular type of personal lending, generally used for the purchase of a car or property. The amount borrowed is secured against your assets, your assets becoming collateral for your loan.
Unsecured personal loans are another common type of personal lending. These aren’t backed by collateral, and are therefore harder to be approved, most especially if you have a low credit score.
Payday loans offer small amounts of money at high interest rates. They are designed to be repaid on the day you receive your next pay check. There are high additional costs attached to payday loans, and should be avoided if at all possible. Failure to pay back your loan on time will mean your loan will roll over, incurring even higher costs.
Companies that lend to those with bad credit
A low credit score will reduce the chances of being accepted for a loan. However, firms that offer bad credit loans to those with a credit score of 550 or less do exist. At the time of writing, Avant and LendingClub are two companies that are offering installment loans to those with a credit score of less than 600.
Beware of scams
A quick online search and you will find dozens of companies claiming they will lend you money in an instant without a credit check. Many of these websites are loan scams. Of those that aren’t, the fees on lending will be expensive. Having bad credit means that you are more susceptible to scams and fraud. This is often a direct result of becoming desperate to be accepted for a loan after having been turned down by several reputable lenders.
The bottom line
Always research the lender in depth before applying for a bad credit loan. If it seems too good to be true then chances are the offer you are reading is a scam. Alternatively, there may be high interest rates and hidden fees involved. By improving your credit score, you will open the pathway to secure and reputable lending that will actually improve your current financial situation rather than further-damage your credit score.