Bad Credit Loans Are Only For Suitable For Those With Defaults
Have you heard the rumor that only people with defaults on their credit report apply for loans for bad credit? It’s far from the truth.
Defaults are not the only reason for bad credit. Your credit score is calculated by taking several factors into consideration.
Some loan customers with bad credit may have defaults on their credit records - but others choose these types of loans for the benefits they offer.
- Bad credit loans are available to anyone and are an excellent way to improve your credit score if you pay your installments on time.
- You can use this loan to consolidate your other debts if you’re having a hard time repaying them. This could help you manage your debt repayments.
- If you need cash urgently the fast approval time these loans offer can be extremely helpful.
The Interest Rates And Terms Will Always be Unfavorable
The APR you pay on your bad credit loan - and the terms of the loan - vary depending on several factors.
Your credit score may not be as important a factor when it comes to approval for these loans - but your income, employment history, and collateral can make a big difference.
- Affordability Is Key - If your income is sufficient and your monthly expenses are low you stand a good chance of being approved - and you may be offered a competitive APR.
- Stable Employment Helps - Lenders will always offer better terms to customers who have full-time or regular employment
- Offer Some Collateral - You could be charged less interest if you have a vehicle or property to use as collateral
There is no predicting what your APR and terms will be until you apply for a loan and a lender assesses your creditworthiness.
Don’t be discouraged by myths about high interest rates - apply and see what your loan company offers you.
You’ll Always Need Collateral
In the previous section we mentioned the advantage of using collateral to secure a loan with bad credit - but not every loan requires this.
You may have heard stories about people having to sign over their cars to loan providers during the application process.
For most loan applicants this isn’t something to worry about.
- You can apply for a loan for borrowers with bad credit with no collateral and still stand a good chance of being approved.
- Collateral may lower your APR but it’s not a deal breaker. Having a stable job and a comfortable income are also important.
- Many bad credit loans are unsecured, meaning no collateral required. Most loan providers offer both secured and unsecured loans for borrowers with bad credit.
Don’t be too concerned if you don’t have collateral to offer as security for your loan. You can simply apply for an unsecured loan as a borrower with bad credit.
You Can Only Get Bad Credit Loans From Your Bank
It’s true that banks offer personal loans to their clients - and clients with weaker credit are welcome to apply.
However, there are plenty of loan providers that cater to less creditworthy individuals that are not affiliated with banks.
Credit unions and online loan providers have been offering loans to individuals with weaker credit for many years.
There are several pros and cons associated with these providers as well as banks.
- Banks tend to offer lower APRs than some bad credit lenders - but they almost always require a credit check during the application process.
- Credit unions are well known for their personalized service and friendly atmosphere - and they may not insist on a full credit check during the loan application. However, it should be noted that credit unions aren’t always at the cutting edge of technology.
- Online loan providers offer fast, easy applications without credit checks and many of them aim for same-day approval. You may find that the APRs they offer are higher than those of banks and credit unions.
They Take A Long Time To Process
There may have been some truth to this myth several years (or decades) ago but today the opposite is true.
These specific loans offer some of the fastest approval times in the financial industry - in fact some of them provide instant provisional approval.
It’s not unusual to apply for a loan with weaker credit and receive your application decision - or even your cash payment -on the same day.
- Loans for bad credit are widely available online. Many loan companies have adopted a fully digital application process with no paper documents required. This speeds the application process considerably.
- Fast approval times and no credit check required policies make these loans ideal for those times when you need to make urgent payments.
- Many loan providers offer an autopay option which lets you pay your loan installment automatically by direct debit. This feature will save you even more time over the period of your loan.
Bad Credit Loans Are Dangerous
These loans are no more dangerous than any other type of loan.
If you budget for your monthly loan payments and ensure that you pay on time, you could improve your credit score over time.
- Finding yourself in debt and being unable to pay can be financially dangerous. This applies to any debt - not only to loans for bad credit borrowers.
- If you’re unable to repay your loan, it’s always best to tell your loan provider and request an extension. This will help protect your credit score
- Lenders are registered financial service providers. If your lender behaves in a way that you feel is unethical, you can report them to the Consumer Financial Protection Bureau.
Most loan companies catering to individuals with weaker credit maintain good relationships with their borrowers.
If your loan installment is affordable, you should have no problem making your payments.
What To Do Before Applying For A Bad Credit Loan
Applying for a loan with a bad credit score is always easier if you prepare in advance.
Here are some steps you’ll want to take before you fill out your application.
- Gather Your Personal Documents - You will need to provide proof of identity, income and employment. Your Social Security card, driver’s license, and latest pay stubs may be required.
- Budget In Advance - You’ll need to create room in your budget for your monthly loan repayment. You may need to cut a few expenses or supplement your income to make sure your budget is balanced.
- Shop Around - Comparing various loan companies is a great way to find the loan that suits your needs and budget.
The myths and misunderstandings around bad credit loans shouldn’t stop you from exploring this lending option.
Now that we’ve separated fact from fiction, you’ll be able to assess your options carefully and choose the loan that suits your needs.
A loan for borrowers with weaker credit featuring an affordable monthly payment and competitive APR could be a fast, convenient source of cash that even helps improve your credit score.