When you apply for a loan, the lender checks your credit score. Qualifying for a personal loan can be a bit costly if you have a low credit score. A bad credit score cannot stop you from availing a personal loan. In fact, you may get loan offers from multiple lenders even though you have a low credit score.
Bad credit loans work like other personal loans but generally come with a fixed interest rate and are payable in fixed monthly installments. If you have low credit, you may not be offered the same type of loan or favorable credit options. If you have a good credit score, you can get better and more affordable loans, credit cards and other financial products. Let us know more about bad credit loans.
What Is “Bad Credit”?
The idea of having a good or bad credit really refers to our ability to pay back the money we’ve borrowed. If you neglect to pay your bills at all, you can expect to get a negative credit score and this will be seen as bad credit. This comes from the credit rating agencies and their measurement of our record while paying off our loans. There are three major credit bureaus, Equifax, Experian and TransUnion.
The primary credit scoring system in the US is the FICO (named after the Fair Isaac Corporation) system, developed in the 1970s. It uses a range between 300 and 850 points, with a higher score indicating better credit. Borrowers with a score of 579 or less are considered to have bad credit.
What is a bad credit loan?
A bad credit loan is a type of personal loan designed for borrowers with a low credit score or poor credit history. Just as you use a personal loan, you can also use a bad credit loan for your various purposes, such as covering financial emergencies, consolidating debt or paying medical bills, etc.
Bad credit loans work in the same way as personal loans and personal loans, but come with a fixed interest rate and are payable in fixed monthly installments. The main difference with this type of loan is that they often come with higher interest rates and fees.
When you take out this type of loan, the interest rates on this type of loan are much higher than on standard loans, so it can take a long time to repay them, especially if you are already in financial difficulty. Before applying for a bad credit loan, one must read the transparent pricing and terms from the bad credit loan provider.
Where can I get a personal loan with bad credit?
Many people believe that personal loans will be unavailable if you have a bad credit score, but in today’s time you can get a personal loan even with a low credit score. The most important thing is that you do not need any kind of collateral for this type of loan. However, it is costlier than a normal loan. You can get a bad credit personal loan from many places.
- Credit Union – There are many options for bad credit loans, the first one being Credit Union. Credit unions are member-owned institutions that can provide you with loans.
- Online Lenders – There are many online lenders these days who provide you loans even against your bad credit score. For example, Avant offers loans to consumers with credit scores below 580.
- Traditional Banks – If you have a good relationship with a bank, you can also get a personal loan from that bank though they have more stringent credit requirements.
What are Alternatives to a Bad Credit Loans?
If you have a bad credit score and that is why you are not getting a loan, there are several loan options to choose from depending on your circumstances. However, Financial advisors always advise you to always make a budget and repayment plan to avoid drowning in debt. Here are some options you can consider in case your loan is not approved.
- Family or friends:- If you do not get loan from anywhere, then first you can approach your family or any friend. Get an agreement in writing to avoid any confusion, and only commit to a repayment schedule that you can comfortably afford and that works for your budget.
- Once you get this type of loan, consider improving your credit health and building an emergency fund to help you get back on track financially. This way, if you experience financial hardship in the future, you will not have to resort to bad credit loans.
- Payday Loan:- If you are not getting loan from anywhere and you are in dire need of money then you can go for Payday Loan. However, these types of loans should only be used as a last resort as they often come with triple digit interest rates. Plus, they’re usually due within two weeks and can put a strain on your finances if you can’t make payments.
- Traditional Bank – Taking loan from any conventional bank is a bit difficult with bad credit but, if you are with any bank for a very long time then you can ask them for short term loan at reasonable rates.
Frequently Asks Questions(FAQ’s)
Q1. Where can I get a personal loan with a bad credit?
Today credit unions and online lenders offer personal loans even if you have bad credit. However, personal loan rates can be a bit high for bad-credit borrowers.
Q2. Which is the easiest loan with a bad credit?
Payday loans can be an easy option for those with bad credit. Payday high-interest installment loans are easiest to get with bad credit, but they can do long-term damage to your credit and finances.
Q3. What are the alternatives to a bad credit loans?
If you have a poor credit score and therefore cannot get a loan, there are several loan options to choose from depending on your circumstances. Like family or friends, Payday Loan and Traditional Bank etc.
The Bottom Line
If you need money fast to deal with various expenses, taking out a bad credit personal loan can be a possible solution. But before you do, consider whether you can afford the higher borrowing costs and look for cheaper alternatives. For example, a friend or family member may be willing to lend you money at a very low interest rate. Also, beware of potential scams – stay away from lenders that guarantee approval or charge extremely high rates compared to other lenders.