Your credit score determines where you rank in the rating chart, when it comes to bad credit a credit score of 559 and below is generally considered bad credit. So, if you need to borrow money you will have to look at institutions that lend what is called bad credit loans.
In this day and age of lending there are lenders that cater to all types of risk profiles. There are many factors lenders look at when approving loans, of course one major factor is your credit score. The formula for calculating a credit score is a secret among the credit agencies, but the final score is what counts. The way it works is the lower your score the higher the risk for the lender. The higher the risk the more interest can be charged by the lender.
Banks are kind of fickle when it comes to high risk customers, some banks have departments specifically designed to handle high risk loans while others won’t even talk to you. This opens the door for small lenders, they do specialize in lending to high risk customers. One source you will want to look at is your local credit union. Credit unions are more flexible in their lending practices because they are member driven and they cater to a sector or community. They do not have stockholders to account to which makes a big difference in the way they do business.
Private lenders are next on the list, many of these lenders can be found over the Internet which makes it a convenient process to do. The last source you can look at are places called payday loans. These are the least preferable places to borrow from because of their high interest rates, but they do serve a purpose for people with bad credit.
It should be mentioned that any of the above mentioned sources will help you rebuild your credit score as long as you remain in good standing with them.
Obtaining a Bad Credit Loan
You’re not alone when it comes to having bad credit, this is the reason there are so many companies that are in the business of high risk lending. The process of obtaining a loan like this is pretty much the same as when someone applies for a normal bank loan. We will assume you want to apply for a personal loan.
Now a days you can do the application process right over the Internet. The usual information is required like employment, debt, residence, these type of things. Your credit rating comes from the three major reporting agencies, so the lender will access that for you. All of this information goes for approval to an underwriter and it is up to him to approve or deny the loan.
Since you are dealing with a company that specializes in bad credit loans your bad credit score is not a surprise to them, they are more concerned about you paying them back. The bigger decision lies in how much you make and how much debt you have. Since a personal loan is an unsecured loan the question the underwriter has to ask himself is, does the customer have the ability to pay the loan? Generally, an underwriter has guidelines they follow and they don’t have to make to many judgement calls.
How Long Does it Take to Get a Loan?
If you go through a bank it can take a week or so to get an answer. Credit unions and private lenders can have an answer in a matter of days because they don’t have the same bureaucracy to go through. If you decide to go the payday loan route it can be as quick as a few hours, and the reason for this is they don’t even check your credit score, if you have a job and checking account you are pretty much guaranteed approval.
In the old days bad credit meant no loan, but a lot of that has changed and as you have read there are quite a few options available to borrow from even with bad credit.
Talking to a Lender
Many high risk lenders are open to dialog about the circumstances behind your bad credit. Having bad credit doesn’t always mean a person is a bad risk because of bad spending habits, and lenders are open to hearing what happened. Many times a job loss or an illness contributed to a persons bad credit rating, in these cases a lender can make amends and give the customer better interest rates or other terms. Knowing the situation behind a bad credit rating can also make the difference between getting a loan or not.
Bad credit loans are out there, you can use them for personal reasons or you can use them to rebuild your credit. You will want to make every effort to pay your loan on time and pay it off, if you default on this loan the odds go way down that any high risk lender will loan you money in the near future.