Bad Credit Loans
There are a variety of personal loans intended for borrowers with different needs. Maybe you want to buy a car, consolidate some debts, or even plan a wedding; ideally, your savings account would be able to cover for most of those situations, but life can take unexpected turns no matter how carefully we plan ahead.
If you don’t have an emergency fund, or an overlooked expense pops up right after you’ve spent the savings on something else, taking out a personal loan may be a good option. These loans tend to have lower interest rates and are considered safer than some other types available (read: you’re more likely to establish, and maintain, good credit).
But what happens when you need the money urgently, and you have a low credit score? Well, the options narrow down a bit, and borrowing may be more expensive, as the investment is considered less secure for the lender. Still, there are solutions available for such scenarios, and one possibility is the so-called “bad credit loan.”
What is Bad Credit?
Strictly speaking, any FICO score that ranks below 630 is classified as bad credit. “FICO” stands for Fair Isaac Company which came up with this method of assessing your current financial situation, and predicting your future spending pattern based on that. There is a lot that comes into this calculation, and it depends on your credit report, as well as the agency whose data is used to determine the FICO score.
It’s important to understand that you can have more than one FICO score at once, and different ones will be used by various lenders to evaluate how soon you will be able to pay off what you borrowed.
The better your credit score, the more room you have for negotiation. However, this isn’t to say that having bad credit leaves you without options; there is a range of bad credit loans available to help you handle any urgent expense.
Types of Bad Credit Loans
Like other types of personal loans, bad credit loans can be secured or unsecured. The main difference lies in the outcome of situations when the borrower cannot repay the full sum to the lender in the period previously agreed upon.
A secured loan requires you to include valuable property, like your car, making it “collateral.” If you fall behind on paying the debt, the loaner can legally collect your car, in which case you won’t be indebted anymore.
An unsecured loan comes without collateral. Should your loan go into default, the lender can try to get back the unpaid amount with the help of a collections agency, or through another legal mechanism. This automatically makes an unsecured loan a bit riskier, resulting in higher interest rates for this type of deal.
Payday Loans work like instant cash sources when you need money urgently. They don’t require much elaboration on how you intend to spend the sum; they just need to be repaid in full as your next paycheck arrives.
These loans come with higher interest rates, and if you don’t plan out everything carefully, it may be challenging to repay them. Sometimes, payday loans also come with additional fee requests. The annual percentage rate (APR) is typically around 400%.
Being realistic about your current situation, and borrowing the amount you know you will be able to return at the agreed time is essential when opting for a payday loan.
Title Loans are usually available online and in storefronts. They come with collateral, but their interest rates aren’t considerably lower than with payday loans (typically around the APR of 300%). They also must be repaid in a matter of weeks.
This often turns out to be a more difficult task than it initially seems, so make sure you know what you’re getting yourself into beforehand. You can reap the rewards if you plan very carefully how to return the money in time; if that isn’t possible, it’s better to seek another option.
Cash Advances are another form of payday loans, and you take them from payday lenders. The process is simple: you write a check for the amount you borrow, counting in the lender’s fee and high-interest rate, and, the next time you receive a paycheck, the entire sum is taken from your account.
The APR of cash advances is 400%, and they carry the same risks and benefits as other types of payday loans.
Bad Credit Installment Loans
Bad Credit Installment Loans are designed to help you build or improve your credit score, and often come with excellent terms. First off, you are not meant to return the borrowed amount immediately, or all at once. Instead, the payments are spread out over a longer period, so you can treat them as any other monthly bill.
At CreditNinja, APR starts as low as 199% which makes taking out installments loans much more affordable and manageable. The monthly sum is usually fixed and includes the interest rate, ensuring a steady, worry-free approach to your calculations. Timely payments aren’t just appreciated, but are oftentimes also rewarded, as your lender may report the positive pattern to the credit bureaus, potentially even improving your credit.
Considerations Before Taking a Loan
When your credit is low, you need to be extra careful with loans to ensure you don’t put yourself in a difficult spot and start improving your situation instead. We went over some of the traps you need to be aware of and dodge whenever possible, but here are some other ways to stay safe when borrowing money:
- Carefully evaluate the situation you’re in right now how many bills are you paying for every month? Are there any additional expenses slipping under your radar? Are you frequently shopping for clothes or eating out?
Everything you can think of will make it easier to stay ahead of the curve and prevent unnecessary issues later on.
- Be thorough in research and know what you’re getting yourself into demanding clarity before signing up for any loan is non-negotiable; you deserve to understand every last detail to make the most informed decision.
You will recognize good loaners by their transparency about what they offer, their patience, and willingness to answer all of your questions.
- When uncertain, get help. If you aren’t sure you’re fully equipped to find the best option for yourself or merely don’t have the time to get into the details, talking to a professional is an excellent idea. Not only it’s their job to know everything about the issue in question, but they will be able to spot possible risks that aren’t as obvious to the inexperienced eye.
This way, you will always stay on the right track when it comes to picking a safe loan and improving your credit score.
CreditNinja provides lower APR installment loans for all types of people, including those who may have bad credit. To see whether you qualify, you can begin an application now.