Lenders will usually assess your credit score and use it to determine how likely you are to repay them if they were to provide you with funding. In this respect, some lenders may be unwilling to lend you money if they find that your credit report presents a history of failing to repay your debts on time.
The good news is that there are a wide variety of loans available to people with bad credit, and you can even apply to get bad credit loans online. The bad news is that there are also numerous online lenders that seek to prey on those with bad credit.
They will usually offer access to funds, but attached to that money are unfavorable lending terms that can potentially trap loan applicants in a cycle of bad debt.
In this respect, it is important that you take the time to conduct thorough research to avoid predatory lenders. As such, we are going to help you navigate what options are available to you as well as provide some useful tips on the best way to acquire loans with bad credit.
So, let’s get started!
What Is Considered “Bad Credit”?
The first thing you need to understand is what bad credit entails. In most cases, “bad credit” usually refers to having a low credit score, which is often caused by late payments. In this regard, there are a wide variety of credit-scoring models, with most credit bureaus often considering scores under 600 as “poor.”
This can often make it difficult for most people to secure loans when they most need them. It is also for this reason that online credit broker services like CocoLoan have begun to pop up, as they provide borrowers with an opportunity to access funding even if they have a bad credit history.
The service essentially connects borrowers to a vast network of online lenders, with CocoLoan co-founder Sarah Ross stating that they have partnered with “over 100+ loan providers.” This in turn provides borrowers with access to a wide variety of loan products, such as payday loans, personal loans, title loans, and more.
What Types of Loans Are Available For People With Bad Credit?
#1. Payday loans
Payday loans are a form of short-term lending that is usually designed to provide funds up to a maximum of $1,000 that are due by your next payday. These loans tend to also come with extremely high interest rates and fees.
So, if you fail to repay this loan quickly, it can be very easy to find yourself unable to repay the debt. It is for this reason that they are heavily regulated by most states, especially in regard to their loan sizes and fees.
#2. Car title loans
Car title loans are a form of secured lending that can be a viable option for those with bad credit who happen to own a vehicle. With this type of loan, you can get access to funds by using your car as collateral. In most cases, you can usually access between 25% and 50% of the car’s value.
However, the risk of acquiring these loans is that the lender could repossess your vehicle if you fail to make your repayments on time.
#3. Personal loans
Personal loans for bad credit are a form of unsecured lending that doesn’t require collateral and can be repaid in installments. And while these types of loans typically come with high-interest rates, they can often be cheaper than payday or car title loans.
They can also allow you to access higher loan limits and even longer repayment periods. However, the downside is that the lower your credit score, the higher you can expect the interest payments to be.
#4. Peer-to-peer Loans
Peer-to-peer lending, also known as P2P lending, is a system where private investors are able to directly fund loans to potential borrowers. The requirements for these types of loans tend to vary, and in most cases, your credit history may not be heavily scrutinized, compared to traditional financial institutions like banks.
On top of that, most P2P loans tend to come with lower interest rates than payday or car title loans and can also provide larger loan amounts, as well as longer repayment terms.
What Interest Rates Can I Expect From Bad Credit Loans?
Most bad credit lenders will typically calculate interest rates based on a wide variety of variables. This can range from the level of your creditworthiness to the level of your income to the type of loan.
However, considering the fact that your credit history still plays an important role in determining the interest rate you receive, you should not expect the lowest rates.
For instance, most of the rates from CocoLoan’s lenders will typically range from about 3% to 36%. In this respect, If you want to secure a lower interest rate, you will need to take some time to boost your credit score before you submit your loan application.
Top Tips When Applying For Bad Credit Loans
When applying for bad credit loans, it is often a good idea to prequalify with several providers. It effectively provides you with an opportunity to prequalify for a favorable bad credit loan that best fits within your budget and requirements.
And since most lenders who conduct prequalifying only require a soft credit check, you don’t have to worry about negatively damaging your credit score while seeking out good interest rates.
Another tip to consider is to always look at the fee structure beyond the loan’s interest rate. This means keeping a lookout for additional fees, as some bad credit loan providers may end up charging extra fees such as origination fees, prepayment penalties, or late payment fees.
It is also a good idea to always consider the quality of customer service that a loan provider offers before accepting a loan. And while this may not seem like a big issue, it can often end up making a huge difference if you find yourself facing financial hardship in the middle of your repayment period.
In this respect, you should take the time to read past reviews to ensure that it’s a good fit.
Can Securing A Bad Credit Loan Improve Your Credit?
If you are able to qualify for a bad credit loan successfully, there is a chance that you can use it to help rebuild your credit rating. This is because repaying your loan on time allows you to develop a positive repayment record, which is often an important factor when it comes to your credit scores.
However, the only challenge is that not all bad-credit lenders report their clients’ on-time payments to the relevant credit bureaus. This is especially common when it comes to payday lenders, which is why you should take the time to consider the loan provider you use as well as the type of loan you decide to borrow.
Bottom Line
If you have a less-than-stellar credit history but are in urgent need of a loan, then this should have proven information in terms of letting you know what options are out there. However, when it comes to bad credit loans, you should always proceed with caution.
After all, unlike traditional loans, they typically come with high interest rates, which is why you should only accept a loan offer if you are confident you can afford it. This means always reviewing the terms of each type of loan in detail and having a plan in place to pay it back in full.