Everyone can suffer a financial emergency and may need money immediately. Who knows what may happen in your life, like the breakdown of your car, or a major expense due to an accident. You never know what life has in store for you. If it would have been a perfectly good world, you could have borrowed money at negligible interest rates, but we all know how things are. Most of us suffer from a BAD CREDIT score. You must have a FICO score of 620 (or equivalent of CRISIL, etc.) to avail mortgage loans. And as it turns out your FICO score is 580. But this score line doesn’t solve any of your loan problems. So is there any other way out? Let’s find out.
- Definition of Bad Credit Loans
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A loan offered to a borrower with weak, bad or no credit score is termed as a bad credit loan. And since you lack a good credit score, you must agree to churn out extra cash to get the loan. The extra cash is the security that the lender needs to approve a loan to you, unlike to someone else with a good credit score who will be charged less.
The FICO Score line
Since we have used FICO as the base, we have further explained about its range of scores and what they mean –
Types of bad credit loans
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Bad credit loans can be bifurcated into two main divisions- secured and unsecured. Secured loans are issued on the security of a collateral i.e. any major asset that you own like house, factory, land, etc. If you are unable to clear your dues, the lender can seize and sell off the collateral to honour his dues. The balance amount, if any, will be given back to you.
Unsecured loans require the borrower to sign a contract and make a promise to repay. It doesn’t have any underlying collateral as a mortgage. If you are unable to clear your dues, collection agencies will come into play or you may well be driven into court. Student loans, credit cards, etc. are an example of unsecured loans.
How to deal with bad credit loans?
A bad credit loan is like buying a second hand car for your personal use. It is not very bad but it’s sketchy and troublesome. Once you start searching for it, many strangers will promise you things like loan without checking credit score, etc. Don’t trust them unless you have verified their claims. For a bad credit loan, select a lender only after analysing the following criteria –
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- Give yourself a soft credit check or ask the lender for the same. You cannot accept a loan from someone who doesn’t bother about your credit score. Also, ignore those who perform hard credit inquiry as it can hamper your credit score. Prefer a soft credit check as it doesn’t impact your credit score.
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- Ask for flexible repayment terms. Since your credit score is low, it already means that you were unable to repay the loan timely or return it at all. So request the lender for a flexible repayment structure.
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- Choose the lender who reports your repayment to the Credit Bureau as it will help in improving your credit score gradually.
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- Procure instalment loans rather than payday loans. Payday loans are for a short period of time and bear excessive interest on them. Rather go for a conventional instalment loan.