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Loans for People with Poor Credit
In today’s fast-paced world, it often gets difficult to get along well financially particularly if there is only one person per family who is earning. At some point, it becomes mandatory to apply for a loan either to buy something new, for home improvement, an unexpected event like a terminal illness or a close relative bring admitted to the hospital, wedding, or education of a child. Sometimes many of these needs combine making us dependent on multiple loans taken from multiple lenders. Repayment in such a case becomes extremely difficult for the person and as a result a default payment occurs, which badly reflects on their credit history. With the passage of time, the credit score shrinks even further and the person feels more burdened than ever even with all the repayments already made. Banks and credit unions start turning down such a person with poor credit.
Getting turned down for a loan goes a long way than just leaving you disappointed and disheartened. It means you will now have to restructure your plan altogether for buying a home or a car, for starting a business, or getting into a college you like, and so on. One major reason for this rejection is a bad credit score or a poor credit history.
However, people with assets like property or home still have a chance to improve their credit and move towards a better and more secure financial future. This can be done through a bad credit loan or loan for people with poor credit. These are special type of loans but the only distinction with regular loans is that the former would have higher interest rates. Other than that, there is not much difference. A lot of companies are offering bad credit loans to individuals who wish to improve their credit rating and acquire a loan without any hurdles.
Let’s find out how these two advantages can be achieved.
What is Poor Credit?
Poor credit, also known as bad credit, is a three-digit credit score on your report, which reflects your bad spending habits basically and this score plays a major role in your financial life. a credit score is calculated based on a few parameters, such as outstanding debts, payment history, new credit, and time period. This figure ranges from 300 to 850 points. If this number is below 550, it reflects a bad credit score.
A person is considered “poor credit” if he;
- has defaulted in making repayments,
- has previously filed for bankruptcy, or
- has some outstanding debts to pay
Poor credit is a major hindrance in the way of getting a loan because a bad credit history means you might default in the future and therefore lenders would not view you as a reliable borrower. However, depending on the type of loan you’re applying for, many other factors are considered that may improve your chances of getting a loan even with a bad credit score. These include collateral (your home) in case you’re applying for a bad credit homeowner loan, your current income, recent credit history, etc. However, in many situations, bad credit loans tend to have higher interest rates.
There are seven areas where a credit score range is considered in order to determine the interest rates:
- When you apply for a mortgage you have three options: the best rates, the subprime rates, and a regular loan plan with regular rates.
- When you lease an apartment, the landlords look at your credit score to determine your credibility as a reliable tenant.
- Having your utilities turned on because the electric company would see your credit history to find out if you will pay them on time.
- Buying a mobile or obtaining a mobile package; a mobile company would look at your credit score before giving you a package because if you have a poor history there are chances you wouldn’t be able to pay them either.
- Acquiring insurance; when getting life or home insurance you are either declined altogether or are charged higher interest rates due to poor credit score.
- Starting a new business; it is usually very difficult to obtain a regular loan on poor credit for starting a new business. You will have to turn to bad credit loans but they charge much higher interest rates and as a result you would be left with no option but to forego your plan.
Before You Apply for a Bad Credit Loan
Before you go ahead and secure a bad credit loan, it is important to weigh up your situation and use some tactics that would help you in getting the best possible interest rate and the best possible deal. There are special types of loans like home loan, auto loan, etc. If you’re hoping to get a car loan with bad credit, it is advisable to go for an inexpensive car. This way you will need a less down payment and qualify for a lower interest rate because of putting money down on a vehicle.
There is a term called “subprime” loans provided to people with a poor credit history. These are offered by high risk lenders who can get your auto loan application approved by working with dealerships. Contact an online auto loan broker if you want to get your hands on this type of opportunity. It is advisable to obtain as much information as you can if you have bad credit because nobody wants to be bullied by the creditors.
There are many types of loans available out there that provide the option of refinancing for debt consolidation, so keep reading on to see what kind of options are available to you and how you can make the best use of them.
Introduction to Bad Credit Loans
Bad credit loans, also known as “refused” credit loans, provide an opportunity to people with a poor credit score to obtain a loan and repay it on flexible terms and conditions. When a person makes these repayments on time, they can improve their credit rating. This is a huge advantage as the person is then able to secure a loan at lower interest rates the next time he or she applies for one.
Many financial establishments and individual money lenders offer bad credit loans. You can also find many online companies that offer these loans but there terms and conditions vary. Don’t forget that your final interest rate would be determined by your credit score. So, even when getting a bad credit loan your credit rating plays an important role. Companies usually provide an online loan quote, which helps to determine the amount you will have to pay on a monthly basis and the interest rates.
Having a good credit score has many benefits that include obtaining a loan easily, getting lower interest rates on mortgages, and buying inexpensive insurance. Even if you already have a bad credit score, it is advisable to secure a bad credit loan to improve your rating and then become eligible for all the afore-mentioned benefits.
Since bad credit does not always reflect your spending habits and not paying bills on time, there are lenders who work specially for restoration of poor credit. However, different lenders lay out different guidelines or terms and conditions and therefore you need to do your homework when it comes to finding the best lender for acquiring a bad credit loan. Then there are many types of loans offered by these lenders, such as personal loans, short-term loans, and guarantor loans with different repayment duration, limits on the amount that can be borrowed, and different interest rates.
Types of Bad Credit Loans
It is possible to negotiate terms with a lender especially if you attempt to get loan from an online lending company, a debt consolidation firm or a nonprofit debt relief company. This makes the process quite flexible and increases the number of options one may explore further to lower their monthly interest rates to pay off debt conveniently.
You can check out Credit Poor for more information regarding these categories of loans. Basically, bad credit loans are divided into two main categories;
- Secured bad credit loans
- Unsecured bad credit loans
Both these types have their own pros and cons. So, let’s look at these one by one so that you can decide which type of a bad credit loan you need.
Secured Bad Credit Loans
These types of loans use an asset, such as a car, motorbike, boat, or any other thing as a security for the loan. It is also known as collateral and it is determined according to the amount of the loan. The value of the asset needs to be higher than the loan amount. Some companies offer flexible repayment terms, which means the applicant can negotiate a plan according to his or her ability to repay. These are available with lower interest rates as compared to unsecured loans explained below.
Mortgages are an example of secured loans given to homeowners, first-time buyers and people with poor credit. These are loans offered against the equity of your home. In case you fail to repay the amount along with the interest, the bank or the lender has the right to foreclose your home; selling it at a price you owe to the bank. You have to find a lender who will refinance your mortgage and offer debt consolidation to combine all the loans and interest rates based on capital and interest.
Unsecured Bad Credit Loans
These loans are provided to the borrowers without any security and therefore there is risk of a default involved with these types of bad credit loans owing to the poor credit history of the borrower. The lender gives loan at higher interest rate because of this reason. By using this type of loan scheme, you would be able to secure up to £25,000 in unsecured form. If your credit score falls below 500, you may not qualify for an unsecured loan at all. So, before you try getting this type of loan you should first evaluate your credit history, take advice from a credit counseling firm, and take steps to improve your credit score. If you think it’s not possible to complete all these steps, then it is advisable to go for a secured bad credit loan.
How to Apply for a Bad Credit Loan
When you approach a bank, a credit union or a direct lender, you have to follow a set number of steps until finally you’re able to secure a loan. There are a few pre-requisites to be able to get a regular loan from a direct lender. These include;
- Having a substantial monthly salary so that the lender would be able to trust you in terms of repayment on a timely basis
- You must be 18 years of age or older
- You must provide confidential information as well as other documents to prove your identity
People with bad credit history are usually not able to show that they have a decent monthly income. Moreover, apart from having a checking or savings bank account, they have no previous bank statements or other proofs to offer to the lender to demonstrate a stable financial position.
The procedure for applying for a bad credit loan, on the other hand, is very simple and straight forward. Usually online companies process these requests promptly allowing the person to get hold of funds quickly and efficiently. Some types of bad credit loans do not require anything other than a bank account from the borrower and the funds are released immediately.
There are four steps involved in the procedure to apply for a bad credit loan.
- An application form needs to be filled out by the applicant
- The company gives indication of repayment amounts as well as other terms including the time period for repayment and interest rates
- The applicant needs to come up with documents required by the company to complete the process
- Upon approval, funds are transferred to the applicant’s bank account
Here are some special types of bad credit loans for people caught up in different forms of financial difficulties or challenges:
1. Bad Credit Debt Consolidation Loan
In order to consolidate debt, you have the option of getting a bad credit debt consolidation loan that is a type of a personal loan. You might be wondering why take more loan when you’re already under the load of existing loans? Well, for one thing don’t forget that you have a bad credit score, which means you’re already paying higher interest rates than those who have a good credit history. Secondly, debt consolidation allows you to get a single loan that will serve to pay off your multiple loans on which you’re paying varying interest rates. By using this new loan, the interest rate will be contracted allowing you to receive some financial relief.
Thus bad credit debt consolidation offers many benefits, some of which are;
- It reduces your monthly repayment amount because of lower interest rate
- You will now be able to maintain regular payment thereby improving your credit score
- It will stop the creditors from harassing you mentally and physically because now you will be able to pay them on time
- You receive expert advice from professionals with years of experience in the field and they help you get back on track by using the best possible solution
There are many establishments out there that offer bad credit loan to people with poor credit. Let’s have a look at some of these lenders.
Banks and credit unions
Although banks have a reputation of turning down individuals with poor credit for a loan, these people still contact their bank first when they need additional loan to pay off their debt. Banks and credit unions have a wide range of conventional loan options but when it comes to bad credit, they don’t offer many opportunities. Even if they do, they charge a much higher interest rate, thus making it extremely difficult for the person to make repayments on time. This is commonly known as risk-based pricing model, which means the higher the risk they identify the more interest rate they impose. If this is not a viable option for them, they simply turn you down. However, there are many other options for people with bad credit to consolidate their debt and many other lenders who are willing to give you loan on flexible terms.
Debt relief companies
These companies are working solely for the purpose of helping out individuals who have a bad credit history and a debt to pay off. They understand that these people have to pay for their day-to-day expenses as well as make repayments on debt including the interest. That is why they come up with solutions that allow people with a bad credit score to manage their finances effectively, pay off any outstanding debt, and start afresh. There are many plans in this category, so make sure you study them in detail in order to choose the one that best suits your needs and current financial situation. These include;
- Debt management plans, which allow a person to repay his or her entire debt within a period of 5 to 10 years. Such a plan is devised to help an individual save money on a monthly basis because now they would be paying a lower interest rate than they were previously paying to the creditors. This money can play a huge role in repayment of the debt before the stipulated time.
These are just two of the examples of such relief plans. The companies offering these plans also provide support and education to improve your credit score, avoid bankruptcy and other financial and credit card traps, and pay off your entire debt successfully.
As the name suggests, these lenders actually provide a paycheck in advance to be paid back in full with interest after a period of two weeks or four weeks. These loans are designed for emergency needs like paying off some hospital bills or buying a necessary item that cannot be delayed. People with no cash in hand but who have a decent monthly income can apply for such a loan regardless of their credit history and get funds deposited in their bank account instantly. It’s a short-term loan and should not be used for long-term business plans or for buying a home or car. Again, there are many individual lenders out there as well as online companies that offer these loans. Study their terms and conditions before applying for a payday loan and make sure you’re prepared to pay higher than average interest on these loans.
Debt consolidation lenders
While banks cater to a wide range of consumers from large multinational firms, property developers, and government institutions, debt consolidation lenders are companies that solely offer debt consolidation to people with a poor credit profile. There are many types of loans that fall under this category to cater to the needs of a variety of people out there with different financial situations, income, background, monthly expenses, and ownership profiles. These options are to be studied in detail in order to find out the best possible solution that will allow you to pay the amount you can on a monthly basis including interest rate and any other charges, and the timeframe for paying off the entire debt.
Consumer counseling agencies
If you think debt consolidation is not a viable option for you, you may also consider some nonprofit consumer counseling agencies that offer some alternatives to traditional approaches of getting financial relief with bad credit. These agencies negotiate with the creditors on behalf of the debtor to agree on better and more manageable interest rates. Although these companies charge fees for the services they provide in this context, they don’t have to pay taxes on the money they make because the funds are meant for the welfare of people. You can compare these agencies with traditional debt relief companies and choose a plan by either of these if it suits your situation.
2. Guaranteed Approval Paycheck Loan
This is another type of bad credit loan, also known as same day payout bad credit loan. When all other options fail to work, this is one poor credit loan that is guaranteed to get you out of trouble. In case you need an emergency loan for paying the fees of a doctor or surgeon or your child’s school fees when there is no other means available, this type of loan can help. You get the funds the very same day you apply, which is one of the most attractive features of this scheme. The companies offering these types of loans claim that there is no credit check, which means you can secure a loan regardless of your credit history.
You can apply for such a loan this very minute by visiting an online loan provider company, such as Credit Poor, and get your emergency financial needs handled right away!
It is a loan against your paycheck, which means you need to demonstrate that you have a decent monthly income. Other than this, there is usually no hard-and-fast requirement. Be cautious of extremely low interest rates because such companies would reveal some hidden costs later on charging you more than you expected to pay.
However, be wary that it is a type of an unsecured bad credit loan that does not require some form of collateral but it will have a relatively higher interest rate than other options. Also, it is not recommended for long-term plans because the loan usually has to be repaid in full in the coming weeks. You will not be able to catch up owing to the high interest rates and eventually come to a point when more loans will be needed.
However, for emergency needs this is probably the best option available for people with a bad credit history. If you think you need a long-term emergency relief or something different that would also offer a slightly lower interest rate, you can check out other options.
Peer-to-Peer (P2P) Debt Consolidation
When it comes to securing a loan or paying off debts with a bad credit history, the opportunities can be endless. Thanks to the internet, now people have access to hundreds of different lenders that offer a horde of services in this context, one of which is to bypass the traditional banking loan system and offer loan on a peer-to-peer basis. This is known as P2P debt consolidation or P2P lending. There are websites out there that allow people to contact lenders directly, agree on certain terms, and get a loan without involving a middle person in between. While these opportunities sound promising, the lenders still adjust their interest rates for people with a bad credit score because of the risk involved in dealing with them. You may, however, be able to negotiate other flexible terms to repay according to your current financial status.
The company is working to make credit more affordable especially for people who have a not-so-perfect credit profile. Investors can avail this opportunity to make some money through their investment in the form of interest payments made by the borrowers on a monthly basis. They join such a company for many benefits including low volatility and solid returns on their investment. Debtors can join to avail a variety of plans either for debt consolidation or for paying off their credit cards and start afresh. Moreover, there are business loans available at these websites as well as loans for patients to finance expensive surgical and dental procedures.
It is strongly advised to do your research before choosing any online company or website that caters to the fiscal needs of people with poor credit. Whether you’re looking for a loan for debt consolidation or for buying a new home or car, it is a good idea to first improve your credit score a bit in order to land a good deal. For that you will have to monitor your credit score regularly even if you have already availed a loan. This is because getting a loan with poor credit is essentially a way to improve your credit history. In the future, when you would need to apply for a loan again, you will be able to get lower interest rates and thus slowly and gradually move towards a secure financial standing.
Facts about Credit Scoring
A single missed payment for the credit you use can reduce your credit score down 100 points, which is a lot to handle. A couple of more problems and you enter the “high-risk” zone on the lenders’ list. Some people opt for closing down their credit card accounts to get out of trouble but this only hurts the score even more. Others complain that how could they improve their credit when the banks keep turning them down for credit? Some of them have even decided to live a credit-free life by cutting off everything that is related to credit or credit cards. But in reality, it is not possible to isolate oneself from all the temptations of this world. Then there is always a possibility of unforeseen events, such as accidents or an illness that makes one bedridden, unable to go to work, or be hospitalized. You have to arrange for finances for all these incidents. And then there is the pressure of buying a home of your own because you simply can’t afford to pay rent each month; and even if you do manage well, you still don’t have any asset of your own after many years.
So, the only viable solution is to live with credit but at the same time try to improve your credit score by either taking a bad credit loan and making payments on time or controlling your spending habits. That being said, you also need to remember that credit score is not the only thing that lenders evaluate to determine your credit worthiness. Your employment history, the property or home you’re buying, your monthly salary, and your monthly debt payments are all factors that contribute to their decision to give you loan.
You don’t have to worry a lot about credit scoring because fact is this system was designed for lenders and not consumers. What formula is actually used to calculate your credit score and how many points are deducted for a particular action are all decisions taken by the banks that give you credit. There is simply no need to go into the details of this system because they are not very easy to understand for a layman. Having a good score, however, allows you to get the best loan plan saving a lot of money in the long run. Some people with a bad credit history are turned down altogether when they apply for a loan. But these people have the option of going for a bad credit loan.
If you want to know what is causing damage to your credit score, you can request a copy of your credit report from the major credit reporting agencies. Pinpoint the errors and try to improve them by sticking to your obligations.There is also an option of working with a credit rescorer before you attempt to get a home mortgage loan.
Your credit score largely determines your credit worthiness and if it is below 600, it might get you into financial trouble especially when it comes to securing a loan. There is risk involved in lending money to borrowers with a bad credit history. You might be a responsible person but have a poor credit not because you don’t pay your bills on time but because you borrowed a book from a library and forgot to return it. For people like you who wish to restore their credit history and who are looking for a loan, there is an option of getting a bad credit loan.
The only difference between a good and a bad credit loan is that the bad credit comes with higher interest rates. There is also an option of a scheme known as bad credit cash advance, which has been designed for people who have poor credit and who are also facing cash deficiency at the same time. Then there are personal loans for people with poor credit known as bad credit debt consolidation loans. These are designed to get a person out of debt who has been turned down by banks and credit unions. Guaranteed approval paycheck loans are for people who are in need of emergency cash of up to £1,000 regardless of their credit history. But these types of instant loans have to be returned within 3 to 4 weeks at higher than average interest rates.
If you have poor credit score, it doesn’t mean you have no right to own a car, a new home, start a business, spend on some luxuries, pay a doctor’s fee in emergency, or pay off your debt. There are many options for people like you that offer convenient repayment plans to help you get back on track in your financial life. Weigh up all available options and then make an informed decision knowing the good and bad aspects of each one so that you’re prepared for the worst and still manage to get what you want!