April 14, 2012

The number of people who have bad credit is increasing by the day. Bad credit can be due to a default on a previous loan, a slow payment history or a high amount of debt. In the United States alone, there are around 10,000 people with bad credit scores. Those who have been declined loans in the past due to bad credit may believe there are no other options available to them. However, whereas it is more difficult to receive a bad credit loan, especially from traditional sources such as banks, there are alternatives.

While options are limited with a bad credit history, loans are far from impossible to obtain. Unfortunately, bad credit loans have higher interest rates because the lenders use the individuals’ credit scores as a basis to calculate rates. Occasionally, lower rates may be advertised than what is actually offered as companies will always advertise their best rates.

It is very important to consider all the available options when deciding what type of bad credit loan is the most suitable. A reputable lender can often provide advice to help clients avoid scams and inappropriate services. It is always advisable to avoid payday loans, tax refund loans and car title loans, as these are frequently utilized by scammers looking to take advantage of those with bad credit scores.

Credit unions offer a good alternative to banks for those with a bad credit score. Credit unions very often offer better rates across the board for any products but this is especially true after a customer builds a long term relationship with the credit union. This is because credit unions are non profit organizations, unlike banks which are owned by shareholders who expect to see high profits. While credit unions and banks are run in a similar fashion, using the same system of personnel, the board of directors at a credit union is made up entirely of unpaid volunteers who only wish to influence how the credit union is run.

Bad credit loans are easier to obtain when meeting in person with a lender from a credit union. The lender is more likely to approve a loan when considering the individual’s case than when looking at a credit score and loan application alone. In addition, lenders are more likely to show compassion if the bad credit is due to circumstances such as a dismissal from work, divorce or relocation.

An alternative to conventional loans is peer to peer lending services. This involves borrowing money from another person rather than a bank. This can reduce overhead costs and help to avoid the strict regulations set out by banks. It can be a good option for both secured and unsecured amortizing loans, usually lasting less than five years at a fixed rate.

Peer to peer loans allow those with reasonably bad credit to borrow for lower rate than they otherwise would be able to. Services are often offered through an auction where potential lenders bid for a loan, providing the borrower with the best possible rate. The peer to peer lender company may also offer additional services such as transferring payments directly from the bank account of the borrower and depositing it in the account of the lender, as well as customer service, identity verification and correspondence with credit bureaus.

For those with a very bad credit score, peer to peer loans may not be suitable. For those who a bad credit loan with a stranger is impossible, the option of peer to peer lending with a family member or friend may be appropriate. This can use the same structure to ensure everything is processed officially, and both parties are protected. It is important to remember that credit scores can deteriorate further when payments are not made on time even with peer to peer loans.

If family or friends cannot or do not want to loan the money directly, they can still help the borrower by becoming a co-signer. Even those who have been refused a loan in the past may be able to qualify when they have the support of a co-signer.

Another option is to put up collateral in order to demonstrate commitment to the lender. This is achieved by pledging something high in valuable so the lenders know they have a better chance of receiving money. A popular choice is to use the equity of a property to borrow against; however, this is highly risky as it can result in the loss of a home if a payment is missed. It is essential to ensure that these loans are completely legitimate as scammers also target these loans. Signs that a loan may be corrupt include a high pressure sales pitch and lack of a written contract.