Bad Credit Loans Are Typically Faster
Needing cash in a hurry when you have bad credit can be emotionally and financially stressful.
The number one benefit of loans for bad credit borrowers is that they are usually quicker to apply for than regular loans.
- Many lenders are 100% online. The digital application process can often be completed in just a few minutes.
- Any documents that may be required can usually be scanned and uploaded - and there’s usually no need to visit a loan office in order to apply.
- Some lenders offer same-day approval and same or next-day payment of the loan amount if your application is successful.
- This is much quicker than traditional lenders who can take anything from several days to more than a week to approve a loan - and there’s still a chance that your application will be rejected.
They Are More Flexible
Every borrower has a unique financial situation and their own set of needs.
Lenders are aware of this and offer their customers a variety of flexible loan features.
- Flexible APRs – Not all loans for borrowers with low credit scores come with very high interest rates. Your income, employment situation, and available collateral to secure you loan will determine the APR you end up receiving.
- Easy Terms - It’s common for lenders to offer easy terms that make it easier to repay the loan. You may get a longer loan term and there could be an introductory period where you don’t have to pay installments at all.
- Payment Deferrals - It’s always a good idea to repay your loan on time each month. However, if you should find yourself in a tight spot financially, your loan may come with a once-off late payment allowance.
Bad Credit Loans Can Actually Improve Your Credit Score
One of the key benefits of using a loan designed for borrowers with bad credit scores is that it can act as a credit repair tool if you manage it well.
There’s one major difficulty that these less-creditworthy borrowers face: they can’t receive approval for the credit they need to improve their FICO scores.
If you’ve been locked out because of your credit score, a loan designed for borrowers with less than stellar credit could be the solution.
- A loan for borrowers with bad credit goes on your credit history - and if you repay it on time it will boost your score.
- You’ll benefit from having a new loan on your credit history (it may improve your credit mix) and from the positive trend you’ll establish in your payment history.
- As long as you make your payments on time each month you should see a gradual improvement in your credit score.
Your Credit History Won’t Be Checked
These types of lenders generally don’t check your credit score when you apply.
This is a huge relief for anyone who has bad credit and has been rejected for a traditional bank loan as a result.
- Your credit score is not the main factor that makes you eligible for a bad credit loan - income and collateral are far more important.
- Having sufficient income to repay the loan and reasonably low monthly expenses can increase your chances of being approved.
Loans for borrowers with weaker credit can be secured or unsecured.
- A secured loan requires an asset as collateral and may offer a lower APR and better terms in exchange for this.
- An unsecured loan doesn’t require collateral. Your income and employment status will be the main factors involved in the application process.
Consolidation Options
Consolidating your debt is an excellent way to pay it down once and for all.
A loan for weaker credit could allow you to pay off several smaller debts in a single monthly payment.
Here’s how it works.
- If your other debts are about to go into collection your credit score could suffer. A loan could help you avoid the stress and limitations that come with poor credit.
- Consolidating your debt focuses your attention on a single monthly payment. This motivates many borrowers to make payments with the goal of being debt-free.
- It’s important to choose a loan that has a similar, or lower APR than your existing debt. Consolidating at a higher APR will cost you more in the long-term and increase risk of default if monthly payments are too high.
Cons of Bad Credit Loans
No financial product is perfect.
While bad credit loans are an attractive option in many ways, they come with a few disadvantages that we’d like you to be aware of.
- High APRs - Lenders tend to charge higher APRs for these loans than you would normally pay for a bank loan. This disadvantage may be offset if you have collateral to secure your loan.
- Fees & Other Charges - You’ll want to look out for the following fees that many loan providers charge: late payment fees, origination fees, application fees, and prepayment fees.
- Large Loan Amounts - This may sound like an advantage at first glance - but if you borrow a large amount at a high APR you may find yourself saddled with expensive monthly repayments. Always check the estimated monthly installment before you proceed.
This type of loan makes good financial sense for most borrowers with bad credit who need to pay their bills or consolidate debt at short notice.
On the other hand, it’s always worth exploring other options before you settle on this particular loan type.
If you’ve already applied for a credit card and low-APR personal loan and been rejected, you may consider borrowing from a friend or relative.
Conclusion
A bad credit loan could help you repair your credit while paying for urgent expenses.
You could also consolidate your existing debt and pay it down for good.
Before you finalize your loan application it’s always wise to compare various loans.
By choosing the option with the lowest APR, most reasonable fees, and terms that suit your budget, you’ll make the repayment process that much easier.
