If you didn’t already know, a bad credit loan is a type of loan that is offered to people who would otherwise not be found fit to receive a traditional loan. They are for people with low credit scores due to missed or part payments or even falling prey to identity theft.
With the way that economies worldwide have been battling to recover financially after the global pandemic and other variables, many of us are battling to keep up with ever-growing financial burdens.
There are quite a few different types of bad credit loans available. Each has its merits. If you’re looking for a loan and have an unfavourable credit record, below is a list of some of the factors you should consider when shopping around for bad credit loans from lenders.
It’s important to note that regardless of which loan type you choose, nobody can promise you guaranteed approval, although some lenders do have very high approval ratings. While many lenders don’t have minimum credit score limits and will give you a loan. Therefore, even if you are blacklisted, they each have their own approval requirements and you might still be able to get a loan from somewhere.
Factors to consider when choosing a loan
As we’ve mentioned above, there are many loans available for people with bad credit. So many, in fact, that you can and should shop around before choosing one. Here’s a breakdown of the things you should look into when searching for bad credit loans.
Your credit score
While some lenders don’t have any minimum credit score limits, others do. Knowing what your credit score is and why it is so low will help you save time because you can cross those with minimum limits higher than your score off your list.
Loan amount
Before requesting a loan, you need to know what it is for and how much you need. While most places advertise that you can get a certain amount, it may be irresponsible to take more than you need.
Additionally, taking a loan that doesn’t meet your financial needs won’t solve your problem as you’ll still need more funds and might have to take out a second loan if the lender does not let you increase your existing loan.
Processing and approval time
Most online applications are processed within a few hours or even minutes, but some may take up to 48 hours, if not longer. Depending on how quickly you need the funds, always be sure to check the lender’s average application processing time.
Also, check how long it takes for the lender to send you the funds once your application is approved so that you know when to check for them in your bank account. Also, if the loan is for debt consolidation, you will be able to tell your creditors when to expect payment from you.
Interest rates
You can expect that any bad credit loan will have higher interest rates than traditional loans. However, choosing a lender that offers the lowest interest rate for your loan will help you save money in the long run.
What you can spend it on
Normally you can spend bad credit loans on anything you choose as you receive the loan amount into your account and take control from there. Some loans may, however, be specific for vehicle finance for example. Therefore, it’s important that you double-check what you can use your loan for.
Repayment period
Different loans, both traditional and bad credit loans, can have payment periods that range from a few days up to many years. Longer payment periods have the advantage of lowering your monthly repayment.
On the other hand, the longer you have a balance owing, the longer you’ll be charged with interest on the account. Therefore, your interest payable may end up being more than the capital that you initially borrowed if you take a long payment term.
Collateral
Collateral would be any asset you have that can be taken and sold to pay off your loan if you default on payment. Unlike most traditional loans, bad credit loans don’t usually require you to put up collateral during the application process.
Nevertheless, you should always check the terms and conditions so that you know what could happen to you or any of your assets if you default on your loan.
The lender’s license and reputation
We only recommend using fully licensed lenders with excellent reputations. They are bound by law to follow regulations regarding loan agreements and debt-collecting processes if you, by some unfortunate chance, cannot pay back your loan. If you see a possible lender is not licensed then head in another direction and find one that is.
How to check your credit rating
There are several ways you can check your credit score, but the quickest and most accurate way is directly through your country’s tax-collecting authority. Most of them allow you to get one free credit check per year.
There are also many online and mobile apps that allow you to check your score monthly and send you updated reports with where you are doing well and what you can do to improve your rating.
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