Having bad credit depends on your score. Lenders check your credit score to decide whether to give you a loan. A bad credit loan is designed for people with a bad or low credit score. The check is the high interest that comes with such a loan for the high risk involved. Getting this loan requires making consistent monthly payments depending on the agreement terms. Below is a guideline for everything about bad credit loans.
How to get bad credit loan
You can get a loan with bad credit for an emergency. Alternatively, getting a loan when having bad credit requires improving your credit score. This requires making on-time payments on credit cards to lower the balance on them to below 30 percent of the required credit limit. Making timely payments, no new credit, and low credit utilization improve credit score to about 75 percent. It is hard to raise your credit score in about 3 to 6 months by 100 points.
When having an emergency and your loan application is not successfully multiple times, talk to a loan office physically about your creditworthiness. During the interview, go prepared with appropriate documents to prove that you are worth the risk. Some of the paperwork you will need includes:
- List of assets like home, car, and property
- Job history including salary and pay stubs
- Whether you pay or receive alimony or child support
- Tax returns, W-2s and 1099 forms for the last two years
- Bank statements for checking and savings
- All unsecured debts including credit cards and medical bills
Forms of bad credit loans
Secured loans
Getting a secured loan is a great ideal when having bad or imperfect credit. This loan requires security including a car or house. The loan requires securing with collateral in case you fail to pay back. When looking for the best personal loans for poor credit, opt for one matching your financial needs with a longer repayment period. A secured loan comes in handy when having a poor credit score.
Unsecured loan
To get a loan when having a low credit score is quite hard. Keep in mind that this loan comes with a high-interest rate. You need someone with a good credit score who will commit to paying back the loan on your behalf in case you default. Having a guarantor is very helpful when you need money without having collateral. The guarantor should be someone who trusts you a lot since he is taking on a huge risk. Your guarantor is responsible for ensuring that you pay back the loan.
Secured vs. unsecured bad credit loan
A secured loan is ideal when your credit score can’t impress lenders. You get the loan against an asset. The lender will keep the asset as collateral in case you default. Luckily, secured loans come with lower interest, access to more funds, and better terms compared to unsecured loans. The unsecured loan requires a promise to repay but quite difficult to get from a bank. These usually give this type of loan to their best customers with proven income and credit history to pay back the loan.
Lenders of unsecured loans are usually very cautious about who to borrow and carry a huge risk. To mitigate this, the loan comes with a higher interest with little flexibility on terms and qualifying. Some banks give out secured loans depending on how much you have in your savings account or stock value. Using savings and stock to get a secured loan won’t require liquidating your asset after paying off the loan. The beauty of paying off a loan whether secured or unsecured is improving your credit score.
Benefits of bad credit loans
Access to ready cash
When dealing with poor cash flow, getting a bad credit loan is a great idea. This comes in handy for situations such as paying outstanding debt. Additionally, money from this loan is very helpful for basic expenditure and for managing plummeting disposable income. The beauty of a bad credit loan allows consolidating debt by offering much-needed cash. This allows enjoying better quality life while improving your credit history.
Improving your credit
Having a bad credit score limits access to loans from lenders. Luckily, you can get a loan with bad credit. This loan allows making a positive impact on your credit report. Making timely payments to pay back the bad credit loan improves the credit score. This allows building a stronger financial position to make you qualify for regular loans in the future.
Wrapping up
Getting a loan comes in handy in various situations when short of cash. Things become even harder when you have a bad credit score. Fortunately, you can get a bad credit loan either secured or with a guarantor. This loan offers much-needed cash for your financial obligation like debt consolidation while improving your credit score.
