Credit history of a person is the record of his/her financial transactions, with regard to loan repayments, late payments, default in payments and includes bankruptcy. Using this record, your creditworthiness is assessed by credit reference agencies, who decide your credit score. Lenders then use this credit score as a deciding factor, while offering you a loan. Often, your delay in making a payment or missing a payment and thus failing to fulfill your repayment commitment, may result in a bad credit score. The lower your credit score, the harder it is to secure a loan.
But, the scenario is fast changing. Lenders have started realizing the fact that it is irrational to deny loans for people with bad credit. As, there is a considerable increase in the number of people carrying bad credit history, lenders are now more than willing to support those people and have come up with different types of personal loans. By providing a bad credit loan, the lender is facing a higher rate of risk. So, these loans are often accompanied with higher rates of interest. Even the loan amount and term (of the loan) may be lesser, as compared to those offered to people with a good credit score. However, you can improve your credit score once you start repaying the amount, regularly and responsibly.
Loan Options for People With Bad Credit
Though, people with bad credit may find it difficult to secure a loan, there are lenders who provide bad credit personal loans. Such loans can be secured or unsecured. Let us take a look at some details about such loans.
Secured Bad Credit Loans: Secured loans are those schemes, wherein you need an asset that can be pledged as a collateral. The lender will provide you with a loan against this collateral, so that it can be seized (by the lender), if the borrower makes defaults in payment. If you are in possession of some asset and are ready to keep the same as security, bad credit becomes irrelevant. The main reason for denial of loans is the fear that the borrower may repeat their mistakes and make defaults in payment. But, if you are offering your assets as collateral, to support the personal loan, your bad credit history becomes immaterial. Because of the collateral, the lender is assured that he will not face losses, even if the borrower fails to pay back. The borrower too will be cautious and pays back the loan amount, for the fear of losing his asset (usually his/her home). In such cases, the sanctioning procedure for the loan, may be time consuming.
The advantage of a bad credit secured loan is that the borrower may not find any difficulty in securing a loan, even though, he has a bad credit history. As compared to an unsecured bad credit loan, the interest rates will be lower and the loan amount will be higher. Even the term of loan may be longer with easy installment options. However, the borrower has to repay the amount on time, so as to improve his credit score, that may get affected adversely in case of defaults.
Unsecured Personal Loans for People with Bad Credit: As the name rightly suggests, these are not secured loans. No security or collateral is offered by the borrower, in order to secure such loans. As, these loans involve a very high risk factor, the lenders are very much cautious, while approving these loans. So, it is difficult to secure such loans. For those with a bad credit history, it becomes more difficult to secure an unsecured loan. Apart from not having an asset that can be pledged, they have a poor credit record. Nowadays, this scenario has changed a lot and there are many financial institutions and banks that offer unsecured personal loans for people with bad credit history. Though it appears difficult to get one, it is not certainly impossible. Search for those lenders who are specialized and focused their lending activities in this area.
Unsecured personal loans for people with bad credit come with a higher rate of interest. Factors, like the income of the borrower and his job history may be required by the lender, before sanctioning the loan. Usually, they offer less amounts and the loan term may be much shorter. So, opt for an unsecured personal loan, only if you have no other option. You must go through the various schemes offered by different lenders and choose the one that is best suited for you. It is also advisable to approach your bank, for such a loan, as they are conversant with your financial records.
The above said is only a brief overview about personal loans for people with bad credit. Apart from the above, there are certain financial institutions that offer payday loans for those with a very low credit score. This loan is offered for a very short term and the installments are debited directly from the bank account of the borrower, a day after his or her payday. So, this loan is also called direct debit loan. Although, modern ways of information technology made it quite an easy task, it takes a great deal of search and homework to find the appropriate lender for bad credit personal loans. As a part of their marketing strategy, lenders may offer many features along with the loan. People should not get carried away by these lucrative offers. An expert advice from a financial expert is recommended. Personal loans for people with bad credit offers a golden chance to erase the dubious record and create a good credit score!