Browsing articles in "Personal loans for bad credit"
Mar 25, 2012

Unsecured personal loans for bad credit

If you have a bad credit score and a damaged credit history, financing can be challenging in current economy. Personal loans for bad credit are not an exception here. Some tips provided will help you to find a way to get a loan and to get it on reasonable terms.

Bad credit usually applies to a credit score above 600. Credit score numbers in theory can be between 300 and 850, but normally banks never borrow money to anybody with a credit score below 500 – it is considered too risky. In the past a person with a credit score about 500-600 was able to get a loan. In today’s economy with low appetite to risk, credit score brackets of 620-675 is the lowest ranked bad credit that can get a bank loan. Everybody width a credit score below 620 now is a treated as a subprime borrower.

You need to understand that when borrowing money with bad credit you will:

  • Have less credit limit than ones with a better credit.
  • Pay more interest, sometimes significantly more interest than for secured loans and loans for specific purposes.

The reasons to take a personal loan can usually be the following: urgent car repairs, medical emergency, sometimes even vacations, gifts and other unexpected spending’s. In some cases it makes sense to use a personal loan to repay all other debts – credit card balances, outstanding payments, etc. The first thing to consider is that the terms of a new consolidated loan should be better. Several banks have special personal loans that are targeted to those who want to consolidate debt.

Personal loan in most cases is unsecured (that means it doesn’t require any collateral) and provides you with money that you can spend on your needs by your own will. The drawbacks of such a freedom are the high rates, short terms and very strict fees on late payments. But if you have a valuable asset (a house or other property is an ideal, but it can also be a vehicle, a bank CD (certificate of deposit), maybe stocks) it can be used to secure your loan – it will reduce risk for the bank and let the bank to make your interest rate lower and the loan amount bigger.

Personal loan always have a payment schedule where all your future payments are calculated. Make sure you are aware of all additional fees (late payment fees and other conditions). Some loans have a fee for paying off your debt ahead of schedule – you need to consider this if you plan to repay a loan faster than it was scheduled.

How to get a personal loan with a bad credit

If your credit score is considered as subprime (usually below 600 points) and your credit history is impaired it will be really hard to find a bank loan under any conditions. However you are not along in this situation, some researchers say about a third of all Americans are in this category and the opportunities to get a bad credit loan are growing  – for example today about 10% of all mortgages national wide are taken by subprime borrowers. Here are several steps to follow in your shopping for a loan:

1)      Shop around for a loan one more time. Stop by several bank offices, credit unions. Maybe you are still eligible for a bank loan on regular terms. Especially if your credit score is between 620 and 640 – you just need to search more thoroughly and you’ll find a loan. Try to find a co-signer among your friends and family – if the person in a better financial shape than you are it will increase your chances significantly.

2)      Try to contact banks where you have long relationship – if you have a checking account or a savings account there it can help a lot. Credit union at your job (if it has one) can also be a good start. The main advantage to ask these lenders is that they know who you are and know your history and what to expect – it will help them to better evaluate risks.

3)      If previous steps didn’t help you are likely considered as a too risky borrower. Try to think one more time is it really necessary to get this money today? Maybe you can postpone some spending’s and work on your credit score and financial health for some time.

4)      Check peer to peer lending opportunities. Peer to peer lending means that you will borrow from individuals. It can be more costly for you, but it is not so depending on the procedure and formal credit history indicators as the bank loans.

5)      The last option is to shop around for a cash advance loan or a payday loan. These loans are sometimes referred as predatory because they usually have really high APR (400%-500%) and very short terms (from one to four weeks normally). On the other side these loans are provided without credit check, and no fax needed to confirm your information about yourself. The amount borrowed is between $150 and $1500 and you’ll have to pay about $10-$15 interest on every $100 borrowed.

If you will miss payment on the due date sometimes you’ll get a grace period (but not necessarily – confirm this when you check credit terms) but after it finishes your debt will increase on a fee and then may go to collectors.

However the best advice will be to improve your financial health and save more for the emergencies that can happen, nobody can feel bulletproof from financial difficulties and the best way to fight them is to stay informed.

You can also check the rates of the online lending companies to see if they fit your needs.