Things to Know before You Get a Loan with Bad Credit

Things to Know before You Get a Loan with Bad Credit

Need a loan to help you tide over a sudden financial crisis? Whether you are experiencing a temporary cash crunch or facing an emergency, a quick injection of funds can help you sort out the situation. However, problems arise when you have poor credit ratings. Getting a loan can be tricky when your FICO scores are below average. A number of factors can cause your score to go down. Poor financial management, mounting debt, missed payments, late payments and defaults are some of the primary reasons. Low credit ratings can make you ineligible for most traditional loans. However, alternatives are available for borrowers with bad or no credit.

Popular options in bad credit loans

Getting bad credit loans from banks may be impossible. Most traditional lenders will take one look at your spotty credit history and reject your application. However, that does not mean you are out of options. Many online lenders and lending platforms make it possible for bad credit borrowers to obtain loans. When facing a desperate need for funds, you can try the following:

Payday loans:

Widely available and highly popular, payday loans are quick short-term loans that provide anywhere from $100 to $1000. You can find these loans online and through payday lending stores. Getting payday loans is fairly easy. All you have to do is fill out a quick application and provide minimal documentation. These unsecured cash loans are perfect for bridging the gap between paychecks. Despite their popularity, payday loans are notorious for their short tenures, steep APRs and additional charges. You can also find second chance loans for bad credit as alternative option.

Installment loans:

Installment loans are ideal for those who are looking for a short-term loan with flexible payment method. These loans bear a lot of similarities with personal loans. Typically unsecured, installment loans provide a lump sum amount, and you may be able to borrow up to $5000 with a tenure of 6 months or more. You need to repay an installment loan in fixed EMIs until the loan is fully paid off.

Secured loans:

Poor credit rating significantly lowers your creditworthiness. As a result, most lenders start seeing you as a high-risk borrower who is likely to default on the loan. Finding unsecured loans can be difficult in such situations. However, you can improve your chances of getting funds by going for a secured loan. Some creditors may be willing to lend you the money if you agree to providing collateral.

Some important considerations

If your credit scores are low, try to find out why. Check your credit report and find ways to improve your rating. Building credit takes time and effort, but it needs to be done! Even if you manage to find a bad credit personal loan easily, you must not give up on the idea of bettering your scores. Getting a loan is only a quick fix to an immediate problem. However, your financial troubles will persist and get worse over time if you do not address the underlying cause. If you are unsure about how to improve your credit rating, get in touch with a credit counselor. He/she will have some valuable tips to share with you.