Being approved for a loan with bad credit can seem like an uphill battle and be a challenge. You need to fill out an application for payday loans and usually one of the questions asked is your credit score. You have to agree to the lender checking your credit background.
Typically the better your credit score the better a client you will be. The reverse is also true – if you have a low credit score then you are a riskier client. Lenders like to work with borrowers who are going to make their monthly repayments on time and not default on their loans.
If you have a credit score of under 670 you might encounter challenges getting a good loan. Read on below and we will let you know how to find out the best loans for bad credit.
Bad Credit Loans Top Tips
- It will typically be more difficult to get a loan if your credit score is under 670
- The higher your credit score the better terms and conditions you will get
- One of the benefits of having bad credit is that your chances of being approved for the loan are increased
- If you have low credit then the lender might charge higher interest or change the repayment terms to compensate for the risks
What Is Considered A Loan For Bad Credit?
A bad credit loan is designed specifically for people who have a bad credit rating or do not have an extensive credit history.
They typically charge a higher APR rate and typically the average loan size will be around $350 – smaller than other lending products. The high-interest rates and low amounts lower the risk for the lender. They will take into account the borrower’s credit history but they will also look at other factors including their monthly income, how much they want to borrow, and for how long.
This means that even if you have bad credit or have been declined for a loan in the past then you could still have the chance to borrow some money.
What Are The Benefits Of A Bad Credit Loan?
One of the pros of a bad credit loan is that you’re more likely to be accepted. These loan products are set up for people from all credit backgrounds and so are more likely to lend money to those with a bad credit history. The second benefit of this type of loan is that the application process is quicker – it usually takes less than 5 minutes to apply.
Finally – if you do make your payments on time each month and for the full amount, your credit rating can increase.
What Are The Negatives Of A Bad Credit Loan?
The main drawback of a bad credit loan is that the interest rates can be very high to compensate for the riskiness of the borrower. Bad credit loans are for borrowers with a low credit rating which makes them a riskier proposition.
If you secure your loan against something – like your house or car, you could have these items repossessed if you don’t make your monthly repayments. You might also be charged a fee if you make late payments or miss one of your instalments.
What Types Of Very Bad Credit Loans Exist?
Guarantor loans are different to personal loans because they involve a third person. A guarantor loan is named because someone you know will ‘guarantee’ the loan and agree to pay back the full amount if you cannot. Because it is a guaranteed product it means you can borrow larger sums of money as the lender knows they will be able to claim it back from someone. If you have a bad credit history this might be a way to borrow money instantly as your starting point.
Personal loans are some of the most common loans and typically involve sums between someone looking to borrow $1,000 and $35,000 and can be paid back over 60 months (5 years in total). The interest rates you get on these loans are typically fixed which means that you’ll know exactly what you need to pay back and when. For example, if you borrowed $1,000 at an APR of 40% over 36 months you would pay back $48.11 each month for three years. In total, you would pay back $1,731 in total.
Homeowner loans are similar to guarantor loans as they are secured against something. In this case, they are secured against your home. You can ofter borrow significantly more money than a personal or guarantor loan as the cost of your house acts as the security. Make sure you can afford to pay back the loan because if you can’t then they could reclaim your house. Interest rates are variable and loan terms can be up to 25 years in length.
Guaranteed, secured and unsecured loans can also be called installment loans if you pay back the loan over a number of months. This is why it is called an instalment loan, it is paid back in instalments.
Title loans work in a similar way to home loans in that they are secured against your car or vehicle. They actually work by handing over ownership to the lender (but you can still use it). If you struggle to make repayments then they could take ownership of your car permanently.
They are also called logbook loans. The interest on a logbook loan can be expensive with APR of up to 450%.
What Should I Think About Before Applying For A Bad Credit Loan?
Before you take out a loan there are a couple of things you should think about:
How much you are borrowing – you should only borrow what you need and what you can afford. Bad credit loans should be used in emergencies – the more that you end up borrowing the more that you’ll have to pay back. This is especially true if you have a high interest rate on your loan which would make repayments even more expensive.
How long you are borrowing the money for – This is known as the length or the term. If you borrow over a longer period of time this will reduce your monthly repayment amount. However – you don’t want to go for the longest repayment term because you’ll end up paying much more interest over this period of time. Go for the repayment term where you can comfortably make the monthly repayments.
Interest Rate – make sure to compare interest rates. Low interest rates are typically reserved for those who borrow more or have. higher credit score.
Total monthly repayment amount – To calculate your monthly repayment amount take the principal amount you’re borrowing and add it to the interest. This gives you the total monthly repayments. You might be able to afford higher repayments each month but make sure that it does not go higher than what you have budgeted.
Are There Alternatives For Bad Credit Loans?
If you don’t want to take out a bad credit loan you could start with a credit building credit card which will help you build your credit history. You might be able to borrow more with a loan but with a credit card you can apply for a lower limit which will increase your