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BAD CREDIT LOANS EXPLAINED
Emergencies always happen and in most cases, you may have to pay for the unexpected expenses. Whether you need cash to clear medical bills, college fees or do car repairs, you will need to get urgent funding. The amount you need may vary depending on the situation.
WHAT ABOUT MY BAD CREDIT SCORE?
For large expenses, you may require up to thousands of dollars to clear the bills. Ideally, everyone would have a savings account to get the funds. However, the reality is a bit different. According to recent studies, it is only less than 40% of Americans who have more than $500 in their savings account. Worst still, almost half of the American population have a fico score of less than 620, which is considered a ‘bad credit score’.
If you have a bad credit score and require urgent funding, you are not alone. But where can you get instant financing when you really need the cash? Here is a complete guide on what you need to know about bad credit loans and the funding options available for you.
WHAT IS A BAD CREDIT LOAN?
A bad credit loan is a type of personal funding offered to people with bad or no credit score. With this funding option, the funds are approved in as soon as one business day. Many financial institutions offer bad credit loans.
These include banks, online lenders, and credit unions, among others. But as much as online bad credit loans can be easily accessible, there are also few things that you need to consider before signing the dotted lines;
- First, bad credit loans are generally expensive. Regardless of whether you apply for the loan in a bank or alternative lender, you will be charged higher interest rates than borrowers with perfect credit. A good example of a site that does bad credit loans is PaydayCashAdvance, you can find all types of short term credit.
- A large percentage of bad credit loans are unsecured loans, meaning that no collateral is required. These loans are also short-term in nature. Unlike long term installment loans, you will have to pay the funds within a limited period (usually between 1 week and 3 months)
- Lenders offer these loans in smaller amounts. You won’t expect to be approved for huge amounts of funds since the lender also needs assurance that you will pay the money back. Depending on your lender and other factors, you can get a minimum loan amount of $1000 and a maximum of $1500.
LOANS FOR BAD CREDIT FICO SCORE RANGE
Generally, a fico score that is less than 630 is considered a bad score. To know where you fall, check out the table below. You can access your credit score through your credit card statement or online bank account. You can also get copies of free credit scores provided by the three many credit bureaus (Equifax, Experian, and Transunion), which are issued once a year.
Credit score rating i
300-579 very poor
740-799 very good
HOW DO BAD CREDIT LOANS WORK?
If you have bad credit, it means either of these two things;
- You have a history of paying debts late
- You don’t pay the debts at all
With such records, lenders will consider you as a high-risk borrower and end up charging higher interest to compensate for the risk. When you are in dire need for cash, getting approved for a bad credit loan is the best deal you can get. But you should also note that these loans aren’t as cheap as you may think.
The best alternative is to improve your credit score and qualify for affordable loans in the future. We will share tips on how to boost your fico core later in the article.
WHAT ARE THE DIFFERENT TYPES OF BAD CREDIT LOANS?
The different types of bad credit loans that you can apply for in 2021 include;
PAYDAY LOANS FOR BAD CREDIT
A same day payday loan is characterized by short term payment. The lender will need you to pay the funds within a couple of weeks or months, depending on your loan terms.
If you fail to pay the loan within the required time limit, the debt will accrue and you will be forced to pay more. Payday loans have an annual interest rate of up to 400% of the original loan amount.
CASH ADVANCE LOANS FOR BAD CREDIT
Cash advances are short term loans that come in handy when you have a financial emergency. You can apply for a cash advance if you need quick cash and do not have enough funds in your bank account.
Banks and payday lenders offer this type of funding option. The loan is deducted from your account once you get your paycheck. The APR for a cash advance can be as high as 400%.
You can also apply for an auto loan at an auto lending company website. Your vehicle’s title is used as collateral for the loan and the cash is paid back in installments.
Auto loans have varied terms and conditions, which include your income, the loan amount, credit score, among others. The loans have a duration ranging from 12 to 24 months and attract an APR of up to 300%.
INSTALLMENT LOANS FOR BAD CREDIT
Installment loans for bad credit are a type of personal loan that is specifically designed for people with a less-than-stellar credit score or no credit history.
Since banks have stringent requirements when it comes to poor credit borrowers, it is alternative lenders who provide the loans. The loan term may range from a few months to several years. Bad credit installment loans have an APR of up to 100%.
DEALING WITH THE RISKS OF HIGH CREDIT LOANS
Many lenders provide loans to people with bad credit. However, the terms and conditions of the loan may vary depending on the lender. It is therefore prudent to ensure that you work with a lender who;
CONSIDERS YOUR ABILITY TO REPAY
When you borrow money, the most important thing to consider is your ability to repay. This should also be the lender’s concern. Some online lenders may trap you with short term high-interest loans that can lead you in a debt cycle. But a reputable lender will verify your income and also check your bank statements to determine whether you qualify for funding or not.
PERFORMS A SOFT CREDIT CHECK
Lenders who provide loans for bad credit do not focus much on your credit history. But this also doesn’t mean that they should not look into your credit status at all. The best lender should perform a soft credit check, which will not have an impact on your credit score.
OFFERS FLEXIBLE TERMS AND CONDITIONS
Bad credit loans have a short term repayment term. Payday loans, for instance, may have a term of up to two weeks. Such terms can affect your ability to repay your loan on time. When looking for a bad credit loan online, ensure that you work with a lender who has longer repayment terms. With a longer-term, your monthly payments will reduce, making it easier to pay the loan.
REPORTS YOUR STATEMENT TO CREDIT BUREAUS
If you are looking for a loan with bad credit, it simply means that you have a poor credit score. One of the ways to improve your credit score is by working with a lender who reports your consumer credit behavior to any of the three major credit reporting agencies.
HOW TO IMPROVE YOUR CREDIT SCORE
To improve your credit score, the first step is to look at your credit scores online. Once you check your scores, you will be able to know the factors that dragged the score down and start working on them. You also should be patient enough, since any changes you make might take some time to reflect on your credit report. The five main factors that affect your credit history include;
- Your payment history
- Credit utilization ratio
- Length of your credits
- Types of credits on your report
- Number of credit inquiries
All these factors contribute up to 70% of your FICO credit score. Based on the factors, here are some helpful tips that you can use to improve your credit score.
PAY YOUR BILLS ON TIME
How reliably do you pay your bills? This is an important element that lenders consider before approving a loan. Paying your bills late (or not paying them at all) can affect your credit score. You can positively influence this vital scoring factor by ensuring that all your bills, whether great or small, are paid within the required time period.
LEAVE OLD DEBTS ON YOUR REPORT
Once you pay off all your outstanding debts, you may be tempted to wipe them from your report. But as long as you made those payments on time, they can greatly boost your credit score. The same applies to your credit card accounts.
CONSIDER YOUR CREDIT UTILIZATION RATE
This is the ratio of your credit card balances to your credit limit. As your credit utilization ratio increases, your fico score drops. A good credit utilization ratio should be less than 30%. This means that you are using less than 30% of your available credit. If you go beyond this limit, your credit score will reduce.
CONCLUSION FOR BAD CREDIT LOANS
If you have bad credit, then you already know how frustrating this score can be when applying for emergency loans. But it also does not mean that you will have a bad credit score forever. Even the mistakes that damaged your credit the worst can still be repaired. By choosing a reputable lender, it will be easier for you to get a bad credit loan with flexible terms and conditions. The best lenders can also set a repayment term that you are comfortable with.