Many people assume that if they have poor credit, they are automatically disqualified from receiving a loan. While most bank and non-bank lenders prefer people with excellent or very good credit, it is often people with poor, average, or good credit who are making applications for loans. This is especially true of personal loans.
The nomenclature for substandard credit loan applications is bad credit loans. It’s nothing to be ashamed of since most people in need of money are really trying their best to get back on their feet and a bad credit loan may be their only option. If banks are going to ignore folks with poor credit, there are other options when it comes to loans for people with bad credit. If you have checked your credit score, and it reflects a poor credit rating, you may be a choice candidate for one of these loans. Loan experts recommend comparative shopping to ensure that applicants get all the information they need before signing on the dotted line. There are things that you need to look for when applying for a bad credit loan, notably the interest rate (your repayment terms and conditions), whether there are early repayment penalties, and the amount of the loan that you may qualify for.
What information is needed for a bad credit loan?
First, the lender wants to know that you can repay the loan. That’s why your employment history, proof of income, or even somebody who signs surety for you is important. The more guarantees you can provide the lender, the more likely that bank or non-bank lender is to approve the loan. But there are other considerations, notably your credit score. Before you begin looking for a lender, check your credit score. You can get a free copy of your credit report from any of the top 3 credit reporting agencies in the US. These include TransUnion, Equifax, and Experian. By law, you are entitled to 1 free credit report from each agency per year. Don’t waste money pulling credit reports from alternative sources when you have to pay for them. It should be remembered that you are never penalized for checking your own credit score. The only time this works against you is when lenders pull your credit for things like automobile loans, mortgage approvals, mobile phone contracts and the like.
What loan options should you consider?
Once you have pulled your credit report and you’re confident that you have the right documents to apply for a bad credit loan, your work begins in earnest. Remember: people with poor credit are typically going to pay more interest on their loans than people with good credit. This is simple risk-benefit analysis for the lender. Nobody wants to loan money to somebody who is either incapable or unwilling to pay back that money with interest. Luckily, there are plenty of lenders out there who will forward you the funds for the right price. If your credit report reveals any inaccuracies or anomalies, now is the time for you to remedy those things before you apply for a loan. Multiple factors affect a credit score, including the amount of credit that has been used up, the frequency of your payments, the number of new credit inquiries conducted for the year to date, the number of new accounts you have opened, and the like. To improve your credit score, work diligently towards paying back as many of your outstanding debts as possible. Also, don’t go and apply for as many new credit cards as you can – this will simply increase your overall level of debt and decrease your credit score. Rather work with what you have and pay debts down so that you can be approved for a better rate on a personal loan.
Every time you apply for a personal loan with the lender, your credit will be pulled. It is known as a hard inquiry, and this is detrimental to your credit score. When you check your own credit score, it’s a soft inquiry and nothing will change. The lender of your choosing must be credible and trusted by other users. Fortunately, this is easily verified by word-of-mouth and objective review sites like TrustPilot. All lenders will differ in terms of the credit scores they accept for personal loans. The lower the credit score, the higher the interest repayments – all else being equal. Whatever you decide, remember that is imperative to check the credentials of the lender so that no funny business takes place.