While bad credit limits your options, there are still loans available to individuals with less-than-perfect credit. A good place to start is with personal loans from online lenders. Personal loans come in all shapes and sizes with different term lengths and interest rates. Their versatility lends itself well to the flexibility needed by online lenders. While many online lenders look for good credit from their borrowers, there are others who work specifically with subprime customers.
It is important to note that most bad credit lending options have higher interest rates than those for individuals with good credit. The risk is more substantial for lenders when working with subprime borrowers, so the interest charges are increased to compensate. Products like payday loans and cash advances have significantly higher interest rates than other loans. Before taking on one of these loans, it is essential that you are sure you can afford to pay them back according to the terms.
Secured loans may be another good option for borrowing money with bad credit. When the loan balance is secured against collateral, the risk to the lender is diminished, meaning they are less worried about a perfect credit score. Home equity loans and lines of credit are prime examples of secured loans you can use for whatever reason.
Similarly, if you would like to improve your credit, there are secured loans and credit cards used for the express purpose of building credit. With secured credit cards and credit-builder loans, the customer puts down a security deposit which acts as a credit limit or loan amount. Essentially, you are lending yourself your own money, but every payment you make shows up on your credit report so that you can improve your score.
To further boost your credit, make all your loan payments on time to improve your payment history, which accounts for 35% of your credit score’s calculation. Decrease your credit utilization ratio, so you have less debt and more available credit. Putting the time and effort into improving your credit score will open up so many financial opportunities that you’ve never had before.