Many credit unions and traditional banks don’t approve borrowers with low credit scores and bad credit records. Lenders such as banks and credit unions often remain skeptical towards borrowers with bad credit records for a long time, which can create difficult situations for many. However, even if you have a bad credit score, there are still options for borrowing money, and one of those options is loans for bad credit.
Loans for bad credit are short-term financial fixes, specifically aimed at consumers with poor credit history and bad credit scores. Think of them as personal loans, where you borrow the amount you need and repay through regular monthly payments. The good news is that the loan can be used for just about anything, from consolidating debt to fixing a car, doing a major home repair, moving, or paying medical bills.
In this guide, we’ll discuss loans for bad credit, what exactly they are, what their benefits are, top reasons to take out a bad credit loan, and different types of loans.
What is a bad credit loan?
Obtaining a traditional personal loan from a bank or credit union requires you to have a good FICO score of 650 or higher to even qualify for a conventional personal loan. However, even before your loan is approved, the financial institution will check your credit score with the credit bureau, which collects all information related to your credit. If you fail a credit check, you don’t receive the loan.
Luckily, bad credit loans are a category of personal loans specifically aimed at individuals with low credit scores or no credit. They’re typically used by borrowers whose credit score isn’t high enough to receive a loan from traditional financial institutions.
Taking out a bad credit loan will inevitably drop your credit score by just a few points due to the change in your debt-to-income ratio. However, if you make your payments on time, your credit score will slowly increase, as well as your creditworthiness, even past your credit’s initial value.
Benefits of a Bad Credit Loan
The numerous benefits of bad credit loans is what makes them a viable option in the first place. Here are a few benefits to consider:
Trying to figure out how to cover a financial emergency or cover up a debt can be stressful. This could easily happen to you or anyone else who had their traditional loan application denied by the bank or online lenders. However, you can just apply for a bad credit loan. Once the loan is approved, you’ll have the loan amount deposited into your bank account on the next business day at the latest.
They Can Help Rebuild Your Credit
Most lenders will report account activity from bad credit loans to credit bureaus, and if your repayment is timely, your credit report will clear up, and your FICO score could receive a boost up to 35%. This not only puts you in the good graces of credit bureaus and banks, but also demonstrates to future creditors that you’re capable of responsibly managing outstanding debt obligations.
Extended Payment Options
Payday Loans seem like a good option if you need a small amount of cash quickly. However, the lender usually wants their money back with a higher interest rate by your next payday, and the rates are, at times, exorbitant. For example, an APR (annual percentage rate) for a two-week payday loan goes up to 400%, which equals to 15% interest rate over a two week period.
On the other hand, bad credit loans are installment loans, ranging anywhere from one to five years, giving you plenty of opportunities to pay the loan back over an extended repayment period. However, we highly advise that you check your loan and repayment terms for any prepayment penalties if you ever choose to prepay the loan.
Many Lenders to Choose From
The number of peer-to-peer loan companies doubles almost every year, driving up the competition, and benefiting the consumer by keeping the prices low and the quality of services high. That means you can obtain a bad credit loan with great loan terms, and perhaps even better terms in the future.
The application process for a bad credit loan is fairly straightforward and rarely features any upfront application fees. Just submit your personal information, like your social security number, to your chosen credit union. If the moneylender approves your application, the borrowed funds will be deposited into your account in accordance with your lender’s practices, but usually within 24 hours of loan approval.
Top Reasons to Take Out a Bad Credit Loan
Just like any other personal loan, bad credit loans can be used for whatever you need, as long as it is in accordance with your loan terms.
A bad credit loan can be used for debt consolidation, especially with credit card debt, which is one of the most popular reasons people take out personal loans. By default, personal loans charge lower interest rates compared to double-digit rates most credit cards charge. This allows you to take out a personal loan, pay off the balance on your credit card, and repay your lender.
If you need the money to cover emergency or unexpected expenses, personal loans for bad credit are a good way to come by some cash. Most lenders feature online applications that will let you know whether you’ve been approved in a matter of minutes. You can use these loans for emergencies such as:
- Funeral expenses
- Medical bills
- Late payments and late fees
When it comes to emergency expenses, loans for bad credit are always a better loan option compared to short-term loans with high-interest rates, like payday loans. You’ll still have to pay the origination fee to process the application and open the loan.
Home or Car Repairs
Home equity loans and lines of credit are fantastic for home repairs or home improvements, but they’re secured loans that use your home as collateral. You don’t need an excellent credit score to take out a personal loan that doesn’t include losing your home, in case you fall behind on your loan payments. Additionally, getting a personal loan might be quicker compared to a home equity loan.
The same applies to car repairs and auto loans. Auto loans tend to have the lowest loan rates, but they are secured and use your vehicle as collateral. Personal loans for bad credit can be used to cover for missing payments, or any vehicle repair, if necessary.
Covering Moving Costs
Moving somewhere far away from where you currently live requires extra cash to pay for moving costs. This includes the costs of packaging your stuff, hiring a contractor, and transporting your possession to your new location. However, you don’t need good credits to move. Loans for bad credit can also help you cover moving costs or perhaps provide a cash advance or a security deposit in case you find an apartment.
Types of Bad Credit Loans
There are several types of loans for bad credit, depending on why you need the money, just like any other loan. As such, we recognize the following:
There are many secured loans for bad credit that cover all the aforementioned reasons you should take out one in the first place. This includes mortgages, auto loans, home equity loans, and lines of credit. A secured loan for bad credit is most appropriate if you need the money to buy a house, or a down payment for a car, or perhaps to repair either of those. In addition, they’re usually the least expensive of all bad credit loans, as they’re backed up by collateral or a co-signer.
With a good co-signer, the lender will set the loan terms based on the credit score of the person with better credit. Should you miss your monthly installment, your co-signer will be held responsible for payment.
Many money lenders feature loan offers for people with bad credit scores, including traditional banks, credit unions, alternative online and P2P lenders. Since they’re unsecured, you won’t have to provide any collateral, like your house or vehicle, and these are usually repaid in two to seven years. However, since they’re unsecured personal loans, they tend to be more expensive than their secured counterparts.
Additionally, if things go sideways again, and you default on an unsecured loan, the lender can take you to court, or sell your debt to a collection agency.
Americans owe $1 trillion in credit cards, and while some of that includes purchases, a good portion of that debt includes interests and fees. However, there are many different credit cards for bad credit that help you build up your credit score. This type of card can be exceptionally helpful if you have a credit card and pay it in full every month. Just keep in mind that the APR on credit cards is ridiculously high, so it would be best to repay the balances as quickly as possible to avoid high borrowing rates.
Many credit card companies offer cash advances if you’re ever in need of funds quickly. Banks also provide these short-term cash advance loans, and they’re usually more expensive than both secured and unsecured loans, regardless of your credit score.
How to Get a Loan With Bad Credit
Bad credit happens when you fail to pay your bills and debts on time and often refers to the likelihood of a person with a bad credit score failing to make timely payments in the future. Improving your credit score would be the best possible option since a fair credit score mains better loan terms. In addition, on-time payments, low credit utilization, and no new credit applications could potentially increase your credit score by up to 100 points in three to six months.
However, since we’re discussing financial emergencies and bad credit combined, you should apply for a bad credit loan. Financial institutions that rely on credit bureau data love stability, so bring your previous payment histories (the ones that are or were in order), tax return, details of your job history, and salary. Additionally, bringing a list of your assets, such as a home and a car, and bank statements on checking accounts and savings could also help.
All of these documents aren’t really required, but any evidence you have that can support the fact that you have previously paid things off is going to work in your favor. If that doesn’t work, you can turn your attention towards companies that specialize in loans for people with bad credit. Keep in mind that some of these companies might make credit inquiries, like hard credit and soft credit inquiries that will drop your FICO score by a few points.
You can even get online loans for bad credit when you’re in need of money, and fast, with companies offering quick and simple application processing and fast loan approvals. Some requirements might still apply, like minimum credit score, and minimum loan amount, though these differ from company to company. For more information about the best bad credit loans, please check out Montana Capital’s Q&A section.
Bad credit loans are meant to help individuals pay off their outstanding debts but often prove futile as users continue to exhibit patterns of irresponsible budgeting and spending. A good rule for anyone taking out a loan, regardless of the type, is to prioritize financial accountability. Authorizing and making on-time payments will help you drive your credit score to the desirable range.
However, until that happens, you can apply for a bad credit loan right now at Montana Capital. The company prides itself on assisting many other people in different occupations and income levels, giving them the boost they need to get ahead in life.
Money Today, Relief Tomorrow!
With Montana Capital Bad Credit Loans you can get the loan you need!
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