What Are Bad Credit Loans?
Bad credit loans are emergency financing options for people with bad credit. When it comes to getting a loan, there are several options available. In fact, even for people with bad credit, there will still be loan options. One of these loans are known as bad credit loans. If you are looking for an instant loan approval and in need of cash, this could work for you.
As with any other loan packages, there are loan terms and conditions that govern this type of loan. Prior to deciding whether this is the type of loan for you, you need to know what it is and what you can expect if you decide to get the loan.
What is a bad credit loan?
This is a kind of personal loan that is offered to borrowers who have bad or no credit. When you search for a bad credit loan, you find various institutions offering them, which include online lending companies, credit unions, banks, etc.
What sets a bad credit loan apart from the other types of loans is that it is more expensive in that you will have to pay higher interest rates. Compared to borrowers with good credit standing, people with bad credit can expect much higher rates.
Bad Credit vs Good Credit
What is bad credit and what is good credit? The two are pretty much straightforward. In general, if your FICO score is lower than 630, it is bad credit score. For people who do not know their credit score, they can have a free credit score through sites like Experian.com. They may also be able to access their credit score through their credit card or bank account statement.
For scores 720-850, it is considered to be great credit. 680 to 719 is good credit and 630 to 679 is fair credit. It is bad credit if your score falls below 629 and poor credit if it is 549 below.
How Do They Work?
You may think, just because you have bad credit, you are charged with a higher interest rate? Unfortunately, that is the case. When a person has bad credit, it means that the borrower has a history of not paying his debts on time or in some cases, even default. There are ways to improve your credit score.
Lenders will have to charge higher interest rates since it is riskier to lend money to people with bad credit. To compensate the risk, borrower has to pay for a higher rate.
Two Types of Bad Credit Loans
When getting a bad credit loan, you can choose between two options: secured and unsecured bad credit loan.
Unsecured bad credit loan:
This type of loan is where the borrows have to sign a contract. He promises to pay back the loan based on the loan’s terms and conditions. If the borrower fails to pay the loan, the lender can sought legal help or the help of a collection agency. Unsecured credit loans include student loans, credit cards, and installment loans.
Secured Bad Credit Loan:
On the other hand, a secured bad credit loan has collateral. If you get a secured bad credit loan, you will have to exchange a valuable item like piece of jewelry, home, or a car. In the event that the borrower fails to pay the loan, the lender can seize the item and sell it to get back the losses. These kinds of loans include pawnshop and car title loans as well as mortgages.
How about a payday loan? It is considered to be a secured loan. Although you do not give your car title or your house in exchange for the loan, you are securing the borrower with your paycheck.
Should You Have Bad Credit Loans?
The question as to whether you should have a bad credit loan would actually depend on so many factors. In general, getting a bad credit loan can be risky. Some people may think that a lender who doesn’t check credit scores is actually a good thing. But in reality, it is not a good sign. It means that they are not giving you a responsible loan.
But then again, there are instances where you are in need of a loan. In this case, you will have to resort to a bad credit loan. The good news is that there are ways to do it right.
Here are some tips when it comes to choosing a bad credit loan lender:
- Read through the profile of the lender.Getting a loan can already ruin your finances especially if you have bad credit and you wouldn’t want to make things worse by getting a loan from scrupulous lending companies that will charge you way too high interest rates.
- Find lenders who give personal installment loans. Even if you have bad credit, it does not mean that you can no longer options. You can still choose which kind of loan is easier for you to pay back. Most lenders will entice you with short-term loans that have high interest rate which can lead you to a cycle of repetitive borrowing which will put you more in debt.
- The lender should be transparent. They should be able to provide all the necessary information and other pertinent details that you need. Even if you have a bad credit score, you have the right to information. You need to know the terms and conditions along with the other details of the loan so you won’t end up being surprised later on.
- Find a lender who conducts credit check. You may think that it is a great thing if the lender does not bother about your credit score at all. If a lender does not check your credit, it also means that the lender is not interested in your ability to pay back the loan. However, you should avoid lending companies to perform hard credit inquiry. Doing this can negatively affect your credit score all the more. Before a hard credit inquiry is allowed, the lending company has to get your permission and authorization.
Flexible Payment Terms and Repayment Loans
There are still lenders who will not overcharge you. Even with a bad credit score, you can still find financing options that have flexible payment terms as well as repayment loans. It is strongly recommended that you get a lender who can offer you a personal installment. In that way, you won’t have any difficulty paying back your loan.
Other Financing Options
Bad credit loans should only be used when it is an emergency. If you are just running out of cash, there are other long-term financial solutions. From doing part-time work to selling stuffs that you no longer use. It is very important for you to find viable alternatives so you won’t get stuck in the debt cycle.
Your bad credit score can still be fixed. You just have to find ways to earn more and pay your current debt.