Bad Credit Loans
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To many lending companies, and to many people as well, a bad personal credit score is practically a death sentence. It can be impossible to get a home loan, a car loan, or a loan to pay off some of your debt if your credit score isn’t above a certain number. However, there are some personal loans out there that actually exist to help those with bad credit. No matter what kind of credit you have, you can actually secure a car loan, a home loan, or just about any other kind of personal loan you can think of.
You might wonder why you would want to add another personal loan on top of your other debt (which you most likely have if you’ve got a bad credit score). The answer varies, but generally, people are trying to get a personal loan to pay off some of their other debt. By combining several other debts into one, they can often lower their monthly payments and their interest rates. They also often gain more time to pay off the loan, which is helpful.
Before you start looking for personal loans, you need to know how much you can afford. Generally, you’ll need to make monthly payments on your loan that include the principle and the interest. You may also decide to pay for a repayment protection program, an extra service that can assist you in repaying your loan if you become unable to work. One way of figuring out how much you can pay back is to use a loan calculator. These calculators use the total principle, the interest rate, and the total number of payments to figure your monthly payment and to create a table of payments that shows how much of each will go to principle and how much to interest. They can be very helpful in that they can give you a good idea of how much of a loan you can afford to get.
Once you know how much of a loan you can afford, it’s time to find a lender. You can look at private lenders and banks. Both may agree to give a fast personal loan to someone with bad credit, but both may also turn you away. When talking to a lender, they aren’t really going to be that interested in what you’re using the money for. Instead, their focus is on if you can pay the loan back. However, if you can show that getting a personal loan will help make you more financially stable, definitely mention that. Using a personal loan to pay off high-interest credit cards, for example, may help your case.
It’s important to note that bad credit loans do generally require a bit more work than loans made to those with high credit scores, and this can make the entire process a bit slower. If you need a personal loan quickly, you should walk into the meeting with the lender with everything you’ll need. The biggest factor here is that you’ll be asked to put something up for collateral. This is often your home or your car, although if you do not own either, you may have to come up with something else. Realize that putting up these items for collateral means that you are agreeing that the lender has the right to seize them as payment for your loan, so if you fail to make your payments, you may lose your home or vehicle.
You’ll also be asked to explain your bad credit score. Some people may be tempted to lie here, but you should not. You’ll have to provide information regarding your financial situation for the past several years, and any lies you tell will be found out. Lying on your loan application, besides being against the law, is simply a bad idea because once the lender discovers your fib, they will most likely flat out deny your loan.
You’ll need some other paperwork, too, especially that which supports your financial history. Have your pay stubs ready so that you can show proof of income, have a list of your assets compiled (home, car, etc.), and have a list of your monthly expenses ready as well. Basically, you will need to show that, even with the expenses you currently have, you will still have enough income to pay back the loan.
Note that a loan given to someone with bad credit will almost always favor the lender. This means there will be stipulations. If you miss a payment, for example, your interest rate may jump, and in some cases, the lender may have the right to call the loan due in full. You might also have a balloon payment added to the end of your loan, or the rate you get may be a variable rate, meaning that the lender can adjust it at specific points in the future.
Many loans also include a pre-payment penalty. This means if you pay back too much of a loan in one year, you will be penalized. While that may sound crazy, from the lender’s point of view, it’s not—by paying back a large chunk of your loan at once, you’re effectively cheating them out of a good amount of interest, and so they add a penalty charge to even it out. Obviously, there’s a lot to go over, and you should take the time to carefully read everything. You need to know exactly what you’re getting in to so you don’t further damage your credit score.
By going in prepared and knowing what your bad credit loan is going to look like, you can actually walk out of the lender’s office with a personal loan. It can be quick and fairly painless, but know that your bad credit will be an issue. However, it is an issue that can be overcome.