If you have bad credit, it can be more difficult to get a loan as lenders may view you as a high-risk borrower. However, there are certain lenders that specialize in bad credit loans who can help you find what you are looking for.
What classifies as bad credit?
Generally speaking, bad credit is understood as anything less than 600; with 300-499 classed as very poor and 500-600 classed as poor. 601-660 is a fair score and higher than 661 is considered good.
What are conventional loan requirements?
Generally speaking, lenders will carry out a credit check to look at your credit score and credit history. Experts recommend having a credit score of 620 or higher before applying for a traditional loan. For borrowers with scores below 620, it is unlikely that lenders will approve the loan and, if they do, it is probable that the borrower will face higher monthly repayments.
What are bad credit loans?
There are certain loans available specifically for those with bad credit. When you have bad credit, it is easier to be approved for those that require collateral, those which are co-signed and joint loans. All of these measures make the loan less of a risk for lenders and can make the conditions of the loan more favorable for the borrower.
Other options for those with a bad credit score include payday loans, car title loans and pawn shop loans as well as various places that can help you borrow money online; however, these loans have a bad reputation as they usually come with a short loan term and very high interest rates. More often than not, these types of loans can mean that those with bad credit wind up with more financial problems than when they started.
When should you consider a bad credit loan?
Bad credit loans should only be considered when strictly necessary. The following scenarios could be a good time to consider a loan when you have a bad credit history:
- If your loan application has been rejected by multiple lenders due to a poor credit score
- If you have no other way to manage your existing debts
- If you have defaulted on your credit card payments
- If you are able to repay a loan which could work to repair your credit score.
Factors to consider before taking out a bad credit loan
If you are genuinely considering a bad credit loan, there are certain factors to bear in mind:
- Do your homework – make sure you have thoroughly researched the different options available. This will involve careful comparison and contrasting of different lenders and what they can offer someone in your financial situation. You will want to choose a lender who can offer you the lowest interest rates.
- Eligibility – before facing rejection and disappointment, make sure that you have checked your loan eligibility before applying. Applying for a loan where you are not eligible will lead to being rejected for the loan which, in turn, could damage your credit score further.
- Read the small print – make sure to look carefully at the terms and conditions of the different bad credit loans to save yourself surprises in the future.
- Affordability – before taking out a bad credit loan, ensure that you can actually afford the monthly repayments otherwise you could end up in a worse situation than before.
- Collateral – think about whether or not you can provide collateral. Putting down collateral or security will make the loan less of a risk for a lender. This means that you are more likely to be approved for the loan, even with a bad credit score.
- Co-applicant – you might want to consider a co-applicant or a guarantor for your loan. Choosing someone with a better credit score than you can boost your loan application as the lender will also look at their creditworthiness. If you have a low credit score, applying with someone else with a good credit score can boost your chances of approval substantially.
