What is a bad credit loan?
When a borrower applies for a loan, the lender first looks at the credit score to determine whether or not there is a risk in lending the person money. Now, what determines your credit score? Well, how well you have repaid your past loans or your credit history is what determines your credit score. Now, if you have a short credit history, outstanding credit cards, or a history of late payments on past loans, chances are you have bad credit.
Loans given to bad credit ratings are called loans for bad credit. Some lenders give money without digging much into the borrower's credit history. However, there are some bad loans where the borrower must hold collateral with the lender, such as a house, car, or gold. But some bad loans lack such collateral. In these cases, the lender gives money based on the income of the borrower. Remember that the interest rates, fees and other terms of these loans vary from borrower to borrower.
How to get loans with bad credit?
As we have already mentioned, taking out personal loans for bad credit is more comfortable if you choose a direct lender or a loan company. Usually, banks do not offer bad loans; thus, it's not even an option for most. Apart from that, we will also discuss what you need to consider when opting for them. To take a look:
- Eligibility Criteria: Eligibility requirements don't need to be so strict. When the criteria are strict, taking out a loan becomes too difficult. Try to opt for companies that offer cash advances at minimum income levels, credit rating and debt to income ratios. Since you have bad credit history, you cannot opt for lenders with high demand from borrowers. Therefore, when applying for a bad loan, be sure to check the eligibility criteria carefully.
- Interest Rates and Fees: Compare interest rates and fees from lenders to see who offers an affordable bad debt loan. Some lenders take advantage of the situation and charge a very high interest rate on bad debts. But not all lenders are like that. Some offer bad debt loans at a much lower rate, and that's what you should be looking for; try to find someone who understands your situation and asks for a reasonable interest rate and fee.
- Repayment period: Generally, the repayment period for a bad loan is about one year. There are also urgent bad credit loans with a shorter repayment term. However, we advise you to opt for a longer repayment term because you will have plenty of time to repay the money on time. With a short repayment term, borrowers often fail to repay the loan and fall into the hands of debts.
- Type of lender: Bad debts can be taken from credit unions, banks and direct lenders. The most difficult of all these options is to take out a bad loan from a bank. Banks do not easily grant such loans, and even if they do, it involves a lot of unnecessary checks and paperwork. Getting a bad loan from a credit union is also a great option if you have a close relationship with them. However, the best choice of all is a direct lender. Taking cash advances from online lenders will guarantee you instant cash at an affordable interest rate.
Now that you know what you need to keep in mind when applying online for bad credit loans, it's time for you to learn the requirements of these loans. Although requirements vary in each state, we've created a list of requirements that are common in most locations. Here is the list :
- The borrower must be 18 years of age or older. Minors cannot complete the application.
- The borrower must reside within the borders of the country. To prove that they are citizens of the country, they must provide proof of address to the lender.
- The borrower should have a fixed monthly income. Since the lender disburses money regardless of your bad credit, you need to show them your income details to know that you will be able to repay it on time.
- You must also provide your IDs.
- You must have an active contact number so that the lender can contact you if necessary. An active email id is also a must for smoother communication.
- Finally, you must have an active bank account so that the money can be credited to your account once the loan is approved or use loans without a bank account.
Remember that some lenders have some additional requirements. That is why it is always advisable to check with the lender before applying for a loan.
What constitutes a bad credit rating?
FISCO considers five important factors when calculating your credit score:
- 35% of payment history
- 30% of the amount due
- 15% length of credit history
- 10% new credit
- 10% of the credit mix
After taking these values into consideration, your score will range from 300 to 850. Now let's see what role each of these components play in deciding your credit score:
- Payment history: Your payment history is determined by how often you have repaid previous loans. It also takes into consideration your bankruptcies and other payment issues. The time it takes to resolve these issues is also important. Also, you will have a bad credit score if you haven't repaid your previous loans on time or have taken a long time to resolve payment issues.
- Amount Due: The amount you currently owe also plays a key role. People who spend beyond their credit limit are generally considered bad borrowers. While this primarily focuses on how much debt you currently have, it also takes into account how many accounts you have. If you have significant debt from multiple sources, your credit rating will suffer.
- Length of Credit History: The length of your credit history is also very important. People with high credit scores usually have more than ten years of credit history. Lenders also want to give more money to those with longer credit histories. Borrowers with a shorter credit history of less than three years are usually referred to as bad credit borrowers.
- New credit: If you have taken out new credit several times, your credit rating may suffer slightly. This is why it is recommended to think twice before opting for a new loan.
- Credit Mix: Lenders look for borrowers with a decent credit mix. For example, you need to be good at handling both revolving credit and installment credit. However, in the case of bad credit borrowers, their experience with credit mix is quite poor which gives rise to a bad credit score.
Remember that overall poor performance in all of these cases or just one or two can determine your credit score. Anything below 579 is considered bad credit by FISCO. But fortunately, there are still ways to get safe approval for bad debt loans from lenders online!
Procedure for applying for a loan with bad credit
The steps to apply for bad debt loans online are very easy to understand. Online platforms have made the entire application process so simple that even people who have no idea about loans can apply for one in no time. The best part is that you can apply for bad debt loans online from any corner of the world. All you need is a stable internet connection! Take a look below for the steps to apply for a bad loan on our website:
- Visit our website online.
- Complete the online application for a bad debt loan.
- Make sure you attach all required documents with the form.
- Now connect with the lender and discuss the requirements.
- Once the loan is approved, the money will be credited to your bank account.
Make sure you follow the steps carefully so that your application is approved instantly!
We hope this blog has helped you learn a lot about loans for people with bad credit. As you can see, getting bad credit loans is not that difficult. Yes, finding a lender that offers bad debt loans at an affordable interest rate can take some time. But it is possible! Bad debt loans have made it easier for people to get urgent cash, regardless of their credit rating. However, make sure you have a stable income, otherwise the lender will pay