Are you in a financial bind?
If your credit is poor due to past financial difficulties, then your current money problems may seem a lot worse.
You’re probably thinking: How can I get a leg up and break out of this financial rut with my horrible credit?
Don’t worry. There are lenders who are in the business of rescuing individuals from their financial troubles. Here’s how to get a loan with bad credit.
Understand Your Credit Score Bracket
Is your credit score actually bad?
About a third of American adults have a credit score that’s under 600 points. In the world of lenders and credit trackers, a score under 600 falls in the bracket of a bad credit score.
Lenders rely on a number of credit score calculations, including a model devised by VantageScore. Based on that model, credit lenders break credit scores up into several categories, ranging from super-prime to deep subprime. Here’s the exact breakdown of the brackets:
- Super prime (excellent credit): 781-850
- Prime (good credit): 661-780
- Near prime (fair credit): 601-660
- Subprime (poor credit): 500-600
- Deep subprime (bad credit): 300-499
Although you may not technically fall under the bad credit category, if your score hovers below a score of 640, you probably have a hard time securing any traditional credit. Be it a bank loan or a credit card, traditional lenders take one look at your score and give you a firm ‘no.’
How To Get A Loan With Bad Credit And Stay Away From Payday Loans
If you need money for emergency purposes, you might be tempted to borrow money with bad credit using a payday loan. Long story short: Don’t do it. Avoid payday loans like the plague.
Payday loans are designed for those who are in financial dire straits and need a quick payout. Lenders agree to offer the requested money upfront, but in return, you have to pay back nearly 4 times as much as you borrowed
Also, the payments must be made in a short period of time; otherwise, the interest grows beyond that astronomical 400 percentage.
Since payday loans are more or less a predatory option that you probably shouldn’t consider, you are left with two types of loans that cater to people with bad credit scores. Secured loans are based on collateral, and unsecured loans are based on more traditional terms.
If you’re trying to borrow money with bad credit, you don’t have the cash to put up as a safety net for a secured loan. Still, lenders can’t take a risk on you without requiring some kind of collateral as a sign of repayment in good faith. That’s why secured personal loans require you to sign over some of your valuables as part of the agreement.
Should you default on the loan payments, the lender has a right to your property. So if there’s even a slight chance you think you might not be able to pay off the borrowed sum, a secured loan is not for you.
Personal Installment Loans
A better, more flexible option for borrowers with bad credit are personal installment loans. These guaranteed approval loans are easy to obtain. They also don’t rely solely on your credit score, so looking into one does not damage your current score.
Installment loans typically allow you ample time to pay them back. Your repayment period may last as little as three months or as long as five years. The terms depend on many variables including your track record with repayment of loans and the lender’s requirements.
Ready To Improve Your Financial Fitness?
Learning how to get a loan with bad credit is a great way to fix your current situation. It won’t help your financial issues in the long run, though. Take out any necessary personal loans, and in the meantime, learn how to build a healthy credit. This will set you up for better borrowing in the future. Visit our blog regularly for new tips and tricks on becoming financially fit.