Having poor credit can be a barrier to accessing affordable loans. Surprisingly, a considerable number of Americans have less than perfect credit scores. If we put a figure on this, nearly 50% of U.S citizens have FICO scores of less than 687, which is basically a ‘bad credit score.’
With this score, getting approved for a bank loan can be a nightmare, not to mention credit unions and some mortgage companies. If this is the case for you, then you may have to look for an alternative source of funding when a financial emergency arises.
A large percentage of people who apply for bad credit loans online prefer cash advances. In many parts of the country, you will always find a payday lender who is willing to provide the funds you need. But this also comes with a price. With a poor credit history, you may not get favorable loan terms.
Even so, online loans for bad credit can still be handy if you need to take care of a short term financial situation.
There are different types of online loans for bad credit offered by direct lenders. A perfect example is short term personal loans that are provided to consumers with poor or no credit history. Other examples include;
When you apply for an online installment loan, the lender requires you to make payments in equal monthly installments. These payments are each inclusive of a portion of the principal amount and the interest rate. Installment loans have flexible monthly payments.
Contrary to payday loans, you will be able to pay the debt over a more extended period. Installment loans also have lower rates of interest and can be a good option if you want to make bigger investments.
You can qualify for amounts up to $30,000 depending on your lender, among other aspects. Lenders also consider certain factors when applying for the loan online. The main requirements include:
While installment loans can be used to finance long term projects, payday loans are only meant for short term financing. The loan term may range from a few weeks to a few months. You will have to clear the loan once you get your next paycheck.
The loan is also repaid in a lump sum which includes the principal amount, interest rate, and the applied fee charges. The maximum amount that you can be approved for payday loans is $2,500. There are lenders who can offer more, which is important that you compare all the available options before submitting your loan application.
Applying for a credit card can also be a good option if you need a short term financial solution. Most credit card providers charge interest of about 16%, making them a perfect alternative to high-interest short term loans that can be quite expensive to pay.
You can either choose from a secured or unsecured credit card. If you have bad credit, there are higher chances that you will qualify for a secured credit card rather than the unsecured one. Some credit card issuers also offer unsecured credit cards for people with bad credit.
Bad credit loans can be risky. If you need to borrow an online loan with bad credit, then you should as well understand the risks. Defaulting on the loan can greatly affect your credit score. This means that you won’t be able to get affordable financing in the future. If you do not repay the loan on time, the amount will be rolled over increasing the total amount that you will eventually pay.
The main difference between online loans for bad credit and other types of financing is on the interest rates and fees. Generally, borrowers with poor credit tend to pay higher interest rates compared to those with good credit. Some lenders charge excessive interest rates and fees on these loans. Various online loans for bad credit have an APR of as high as 400%.
As much as online loans for bad credit come with their share of demerits, there are many reasons why people get attracted to them. First, it is easy to qualify for a loan online. The loan application is completed online, taking only a few minutes and once approved, the funds will be deposited in your bank account within one business day.
The lenders, however, offer different terms and conditions on the loans. The maximum loan amount can also be higher or lower, depending on the lender. Here are some essential things that you should consider when applying for a bad credit loan.
Applying for an online loan is always risky. With so many payday loan lenders out there, you may not be able to tell who the genuine ones are. You should, therefore, ensure that you are working with a reputable lender who won’t charge too much interest rates and fees on loan.
Ensure that the lender provides all the necessary details that you need to know before getting the loan. Having a poor credit score does not mean that you can’t access the information you need concerning the loan. You should especially pay close attention to the terms and conditions of the loan and ask for clarifications if necessary.
Most consumers with bad credit tend to assume that lenders who do not conduct credit check are the best. But beware of these lenders since most of them are never interested in how can repay the debt. Their main interest is to make money from the deal. On the other hand, lenders who perform a soft credit check will only approve the loan amount that you can comfortably pay. Lastly, avoid lenders who perform had credit inquiry since this can also harm your credit.
Getting an affordable loan with bad credit can be challenging. The good thing is that you have plenty of options out there. It is also easy to qualify for these loans with lenders having flexible requirements to get the funds approved. Of course, improving your credit score is the best way to be eligible for higher loan amounts with flexible rates and terms. Whether you apply for a short term loan, online installment loan, or credit card, you can use the option to improve your credit. The trick is to ensure that you pay back the debt in full and on time every time your loan gets approved.