Everything You Need To Know About Bad Credit Loans

What is a bad credit personal loan?

A bad credit loan is a type of personal loan which is given to those people who have low credit scores. You have to pay fixed monthly instalments, and the rates of these loans will be fixed. There will be no collateral backing these loans because they are insecure. It is up to the lender to decide whether to give a loan to the borrower by considering the credit score, credit report and debt-to-income ratio. 

How does a bad credit score affect your chances to get a loan?

When your credit score on the FICO scale is between 300 and 629, it is considered a bad credit score. Even though you are not disqualified from getting a loan, your chances of getting approval become less. And even if you become eligible for a loan, you have to pay a higher interest rate. 

Generally, bad credit loans are repaid in fixed monthly instalments during the time span of one to five years. You can use these funds for any need, such as medical bills, home improvement, or credit card consolidation.

Best Companies to Get a Bad-Credit Loan:

When it comes to lending loans, every company has something different to offer borrowers. Credit bureaus get the loan payment reports from these lenders. These reports will help you build your credit score if your loan payments are on time. Here are some of the best companies that can lend you money.

• Upstart:

You can contact this company for a loan if you have a limited credit history.

• Upgrade:

This company is the best choice for bad credit debt consolidation loans.

• SiLoans:

Having a bad credit score, contact this company for the best credit card consolidation loans.

• Universal Credit:

This is the best company for bad credit loans with credit-building tools.

• One Main:

You can get the best co-signed and bad credit secured loans from this lender. 

• Oportun:

If you want to get small bad credit loans, this is the best option for you. 

Bad Credit Loan Rates:

When the borrowers have low credit scores, they get higher rates with personal loans. In the high 20s and 30s, they can expect an annual percentage. In some cases, lenders also consider what you are doing with the funds and the amount you requested for the loan. Then they calculate the loan rates. 

Comparing the Bad Credit Loans:

• Borrower Requirements:

  When it comes to personal loans, most of the bad credit lenders consider the credit score of the borrower. But do not forget that they also keep an eye on the employment history, monthly cash flow, the steadiness of your income, and debts. If a lender has a minimum requirement, i.e., the credit score, then you should have the higher one to get the loan.

• Cost:

  When both are compared, bad credit loans have higher interest rates than good credit loans. But whatever the situation is, you should not forget to compare different offers. In this, you will find the most affordable offer. You can measure the cost of loans in two ways. 

  • Annual Percentage Rate:

    When we talk about the annual percentage rate of the loan, it is just like the interest rate, but there is more in it. The lender may charge you fees such as prepayment or origination fees. These numbers can be used to compare one personal loan with another or can also be compared with other options like credit cards. According to most financial experts, the APR of affordable loans must be under 36%.

  • Monthly Payments:

    Whatever your budget is, you have to compare the monthly payment of the loan with it to check if you can afford it. A personal loan calculator can be used to check these numbers and rates you are getting with personal loans. In case you forget, most of the lenders will show you these figures when you pre-qualify. If you think that you cannot afford monthly payments of the loan, you have to think of the other affordable options. 

• Terms:

  The repayment terms for a bad credit loan are from one to five years. If you choose the longer repayment time, you have to pay lower monthly instalments. But keep in mind that the longer the time period is, the more interest you have to pay. You have to choose a repayment term that is affordable and help you pay the loan quickly. 

• Speed:

  When you apply for a bad credit loan, it can be approved and funded on the same day or might take a week to complete the process. During the process of approval, the lender might ask you for different documentation such as pay stubs or W-2s. So, it also depends on you how quickly you can provide these documents. During the comparison of offers, the funding time is not a thing to worry about, but it can help decide between similar offers.

• Credit Building Tools:

  Having bad credit is a factor to worry about. So you must choose a lender who can understand and help you improve your credit score. Even some lenders offer you financial education so that you can learn to build credit. Some even share your FICO score with you without any charges.

Getting a Personal Loan with Bad Credit:

Let's take a look at the steps to apply for a bad credit loan.

• Check Credit Report:

  When you apply for a personal loan, don’t forget to check your credit report and address. If there are any errors, they will be corrected. Otherwise, they might impact your credit score. If your credit points improve, you will not only get the loan, but it will be on the lower interest rates. You can get your credit report for free from credit bureaus.

• Review your Budget:

  When you apply for a personal loan, don’t forget to review your budget so that you can get an idea of how much you can afford to pay at the end of the month. 

• Pre-Qualify Online:

  After pre-qualifying, you have the opportunity to check different online lenders and what loan rates, repayment terms, and the amount they are offering. In this process, you have to do a soft credit check so that it doesn’t affect your credit score. 

• Co-Signed or Secured Loan:

  You can consider a co-signed or secured loan. It will improve the chances of qualifying for the loan. In a co-signed loan, if you are unable to pay, your co-signer will be responsible. And in the case of a secured loan, the lender can take your collateral. 

• Documents:

  To speed up the lending process, you have to gather your documents first, such as your pay stubs, tax documents, and W-2s, because lenders ask for these documents and some even demands proof of income or employment. 

• Submit The Application:

  The time to get the loan depends on the lender and how much time he takes to review your application and issue funds. Sometimes it will be done on the same day, and in some cases, a complete business week will be spent to complete the procedure. In this process, a complete and deep credit check will be done to check whether you can make repayments of a personal loan on time. 

Secured Vs. Unsecured Bad Credit Loans:

If the borrower has a bad credit score, the credit standards will be high for unsecured loans as compared to their secured counterpart. So it will be easy to qualify for a secured loan if the borrower has a bad credit history. 

Talking about the unsecured loan, the lender makes a hard inquiry about your details like your income, credit history and then decides whether to lend you money or not. But when it comes to a secured loan, you can add collateral in the agreement, so if you fail to make payments, the lender has the right to take the collateral. In this way, the risk for lenders becomes less. 

Even though when you add collateral in your loan agreement, it qualifies for a loan with lower interest rates, and you are at risk of you losing your valuable collateral if failed to pay back the loan. 

Managing the Personal Loan:

Just like any other debt you take, you should have a plan for the repayment of your personal loan. Here are a couple of points that might help.

• Update Your Budget:

  Make a budget that can allow you to equally divide all your expenses, such as your needs and wants, savings, and debts. In this way, you can make the monthly payments on time of your personal loan. 

• Set Up Auto Payments:

  Another way to make payments on time is to set up automatic payments. With the passage of time, this option will improve your credit score. Even some lenders offer discounted rates for those borrowers who set up this payment option. 

The best thing is to keep in touch with your lender, so if you lose your source of income and fear falling behind payments, you can think of a solution with him. Some lenders give relaxation to their customers when they are having a hard time paying and wave off their late payment charges until they get back to business again.