Bad Credit Loans

Bad credit loans are intended for borrowers with poor credit rating who do not qualify for traditional types of financing. These loans are used to pay off credit card debt or loans, purchase a real estate, obtain a mortgage, or buy a second home.

There are a number of factors that turn people into bad credit loan applicants. These are low or no stable income, high monthly expenses, missed credit card payments, being late making payments, defaulting on a loan, filing for bankruptcy, and others. While most banks and credit unions will not extend loans to persons with poor credit, some lenders have specialized in working with clients who have bad credit history. Naturally, they will charge higher interest compared to traditional lenders. Persons with bad credit will also pay higher interest than borrowers with good credit rating. However, once a bad credit loan has been obtained, the borrower can use it to improve his/ her credit score by making timely monthly payments. Depending on the severity of the borrower’s circumstances, he or she may be eligible only for a restricted credit card that goes with a high interest rate.

Bad credit loans fall into two main categories – unsecured loans and secured loans. To obtain a secured loan, one has to provide collateral which is an item of value. It may be one’s house, car, or another property that has value into it. The creditor determines the interest rate and amount of the loan based on a combination of factors: the value of the collateral, one’s credit score, and the total debt load of the borrower. There are mitigating circumstances that can help obtain financing with poor credit. If the borrower lost his job recently or got a divorce, the creditor may be more understanding. The different creditors will weigh these factors differently, using their own specific criteria. In contrast to secured loans, unsecured bad credit loans are more difficult to obtain. Borrowers with poor credit rating are considered risky by the creditors. They may require a co-signor to extend the loan or refuse to grant it altogether. Some borrowers may be able to obtain financing from sub-prime lenders only. It is important to inquire about the terms and conditions, though, as some companies charge excessive penalty fees and outrageous interest.

One can apply for a bad credit loan over the Internet, phone, or visit a bank of choice. The creditor will usually require that the customer presents income documentation, evidence of asset ownership (vehicle titles, property deeds), social security number, and a driver’s license.

Some people need financing for their business but dismiss the idea of applying for a loan because of their low credit score. First, it is important to make sure whether your credit score is actually low and then think of other options. You can ask your financial advisor to evaluate your financial situation. If your credit report shows evidence of creditor’s malfeasance, it will be difficult to obtain financing. However, business owners with moderate-to-poor credit score have higher chances of being approved for a business loan than those with a poor credit. In the latter case, the bank may require that a creditworthy person cosigns the loan.

Another type of loan is the bad credit auto loan, and some dealerships extend financing even to people who have declared bankruptcy. As with other loan types, one should present the appropriate documentation to get approved.