Have you always thought that it’s impossible to obtain personal loans when you have the worst credit rating? Are you losing hope because finance institution upon finance institution seem to be turning down your loan application?
The Stigma of a Bad Credit History
Having bad credit is pretty much like contracting a communicable disease. This is the perspective of most lenders; hence, any requests for personal loan by individuals who have an existing bad credit history are automatically turned down. If not, these individuals’ applications are approved only to be given sky – high interest rates!
The Story Behind the Bad Credit Rating
What most financial lending institutions fail to recognize is that persons with bad credit history didn’t always have the worst rating. There were instances in the past when these people went through inevitable circumstances leading to tarnished financial ratings.
Logically, it would be inhumane to punish such individuals since these were past occurrences, especially since the acts were committed in reaction to the worst circumstances. Lenders are now starting to realize that they can still do business with these kinds of people. Besides, bad credit becomes irrelevant if the financial institution would ask for any asset as collateral for the debt.
Giving collateral in place of the debt is just one of the many ways that can give you your much sought-after personal loan. Being charged with the highest interest rate is yet another.
High Risk Personal Loans
It has been established that a good credit score is essential in getting loans with the best interest rates from lenders. Reality shows, though, that not all individuals have stellar credit scores because some have gone through financial mismanagement or some simply experienced the worst financial crises.
If your credit score plummeted – for whatever reasons – it’s a must to apply for a high risk personal loan in order to redeem your credit rating. If it is your desire to avail of such a loan, then you must be aware of the features of unsecured loans for bad credit.
The Features of High Risk Loans
This type of loan is often characterized by higher interest rates when compared to normal loans. The financial institution may not ask for collateral but be prepared for higher payouts. You will also be able to receive this type of loan if you ask someone to co-sign with you. This person promises to take on the loan in case you will not be able to pay for it.
How to Avail of High Risk Personal Loans
If you opt for a loan that does not ask for collateral, then you will need to sit down and talk with the lender. Lenders will consider various factors before they can approve your request for a loan. They will peruse every detail of your financial position before they grant the loan and since your past repayment history isn’t so good, they will be very strict with regard to income requirements.
To become eligible for the loan, it’s a must that you shouldn’t have any unpaid payday loans. You will also submit your social security number and copies of your pay slips along with your application form. And just like any other loan, you also need to show proofs of identity and residence. You also need to prove that you’re no longer a minor.
Types of Loans for Persons with Bad Credit
Payday loans – this is often a small amount that’s stipulated for a period of time. This personal loan is given against the next pay check and can be easily availed online. The interest rates could be anywhere from 15% to 30% since the loan duration is very short.
Installment loans – these are very much like payday loans except that the repayment structure is spread out over a number of pay checks. These are considered as better options when compared to payday loans since the payments are broken down to smaller amounts. For a person who is struggling with his finances, this is certainly a loan that is easier to repay. The downside is this – you are assigned a higher interest rate!
Government loans – the government has come up with the ODGMO or Office of Departmental Grants Management and Oversight. This office ensures the distribution of billions worth of dollars to the needy U.S. citizens. And since these are government – issued loans, you can count on lower interest rates and a more relaxed repayment scheme. All that you need to do when you avail of this loan is to persevere in paying so that you regain a good credit score.
Points to Commit to Memory
Always keep in mind that a personal loan will always be costlier when compared to home or auto loans. If you can avoid this and make cash payments instead, then do so.
It’s also advisable that you negotiate the interest rates with your lender before you sign the loan agreement. Remember to pay your personal loan ahead of any other loans because this will greatly affect your finances. And lastly, distinguish wants from needs so that you won’t have to fall to that pit called ‘financial desperation’ all over again!