Personal loan options for borrowers with bad credit scores
Due to the instability of the economic environment, it is not uncommon even for people with steady jobs and income to find themselves in need of emergency cash. People have to deal with unexpected expenses, such as medical or home improvement bills. They may need to repair a car or fix a leaking roof. Also, when having several outstanding loans, borrowers may consider consolidating them for easier debt management.
Of course, when the potential borrower has excellent credit history, it is much easier to qualify for personal loans. Nevertheless, it is not impossible for people with bad credit to take out a loan. Actually, there are different options.
The first step towards financial stability is to establish a budget to deal with current and future expenses. Loan customers can have a clear view of the funds they are working with. This is important when applying for a loan because lenders always check the ability of their potential clients to repay loans in due time. It is also an advantage if the loan customer can offer an asset of some kind. Collateral in the form of stocks, house or a vehicle is a great way to guarantee that the borrower will qualify for a secured loan with a lower interest rate.
If collateral is unavailable, customers can apply for an unsecured loan. In that case, lenders check other criteria such as a stable job and a good salary. They also calculate the debt -to- income ratio that shows them how much money can the borrower have on a monthly basis after dealing with his existing obligations and therefore find out whether or not he will have sufficient funds to fulfill his loan obligations. Available personal loans for bad credit can be found online. Using the online method can help compare lenders, fees, rates and other terms and thus finding the most suitable option. Also, clients have to be sure that their personal and financial data will be secured online.
Personals loans for people with bad credit or no credit
Although there are many adverts claiming that bad credit and no credit aren’t not an issue when applying for a personal loan, it is actually quite the opposite. Nevertheless, it is not something that borrowers can’t deal with. Poor credit score prevents customers from borrowing from major lenders such as banks and credit unions. These lending institutions have high standards regarding credit history. They calculate the risk when lending and therefore they must be completely sure that they will have their money repaid.
Therefore, borrowers in need often feel trapped with no alternative other than to take out a loan with high interest rate and fees. Sometimes these loans may not help, but actually worsen the financial situation for the customer.
Signs of bad credit
Loan customers should learn how their credit scores affect their loan options. A credit score can be calculated on several free online sites. According to the National Foundation for Credit Counseling, American citizens seldom check their scores.
There are some signs of bad credit that borrowers should be aware of. For example, these include paying interest that is much higher than the advertised rate or a history of being late in monthly repayments. Also, regular overdrawing of the person’s checking account and giving up on repaying a debt in full while making minimum payments are among the most common signs of bad credit. These may come with refusals of a housing lease or cell phone contract.
Therefore, loan customers must choose wisely which lender they want to work with. Nevertheless, there still are various sources for bad credit personal loans.
Loans from a credit union
Credit unions and banks offer similar services, but the former are owned by their own members. Therefore they are non-profit organizations that use their earnings only to provide their members with cheaper loans. Credit unions that are based in the community of the borrower or affiliated with his workplace are more willing to provide personal loans to their members even if they have a bad credit history. They will base their judgment more on the borrower’s willingness to repay. There are also credit unions that specialize in providing loans to a certain group of people – like war veterans or school teachers, for example.
Asking family members or friends
The borrower must be completely convinced that he will be able to repay his debt in full when the time comes. Not returning money to family or friends may sour relationships. Nevertheless, asking the closest people for help often is the best option. A legal contract may seem unnecessary but it is strongly advisable. The contract should include the terms, interest rates and proceedings in the case of not repaying the loan.
Asking help from a co-signer
If other options are not possible, those in need of money can ask someone they trust and with a good credit history to act as their co-signer. Of course, the co-signer himself should be convinced that the borrower can repay his loan on time and in full. With the help of a co-signer, even those with bad credit can take out a loan from a major lender like a bank. This is due to the fact that the co-signer guarantees the loan repayment with his own credit score. This also means that in case of a default, the co-signer will be equally responsible and his credit will also be damaged. If, on the other hand, the borrower with bad credit makes his payments on time, his own credit will improve and in the future he will be able to take out loans from banks without the help of a co-signer.
Borrow a home equity loan
In case of having equity in their home, borrowers with bad credit can apply for a home equity loan or line of credit. This is the difference between the market price of the home and the mortgage. Because the house acts as collateral, the credit history of the borrower isn’t of great importance. And the interest rate is lower and the interest is usually tax-deductible. Nevertheless, borrowers need to remember that their property is collateral and they may lose it in case of a default.
Peer-to-peer lending is another possible form of lending that may be suitable for borrowers with bad credit. This is an online-based platform that allows loan customers to take out loans from other individuals. Those who apply for a loan post the amount needed on the website and those who are interested in investing will contact them. A credit score is a factor, but whether or not the borrower will receive a loan depends more on the personal decision of the lender. Interest rates are also lower. Peer-to-peer websites also calculate the risk for the lender.
Personal loan lenders
There is another recent player on the loan market – personal loan lenders. They usually work online and offer loans meant for debt consolidation or home improvements. The application process is usually faster and easier. This means that approval is a matter of minutes and the borrower can access the money very quickly in a matter of hours. As for credit history, it is still a factor, but it is taken into consideration among other factors like college diploma and employment history.
Secured personal loans for bad credit
When having trouble with credit history, the most appropriate loan option is the secured loan. Secured loans are borrowed against collateral like home, car or stocks. They come with lower interest rates and offer a larger loan amount than unsecured loans. They are also very good for improving the person’s credit score. Nevertheless, there is always the risk of losing the collateral, therefore borrowers should be cautious. The equity is the difference between the market price of the asset and the amount the borrower owes on it. There is a difference when the collateral is savings or stocks, because there won’t be any need to liquidate that asset and the borrower will continue owning them. For example, the lender will use the income of the stocks in case of a default.
Poor credit advice
An in-person interview to convince a lender of the borrower’s creditworthiness is always a good idea when the borrower is being constantly rejected due to bad credit history. The applicant must bring some documents in order to prove his case. Living in the same city and having the same job for several years is a good sign for the lender. Tax returns, job history and salary amount, property listing, list of outstanding debts, paid or received alimony and child support, bank statements are information that the borrower should bring for that interview.
The lender will probably ask about the applicant’s involvement in lawsuits, bankruptcy declares and also his ethnic background. The last question is considered appropriate because the government requires it. Applicants must be prepared and honest during the interview, so that they receive the most suitable loan offer.