Introduction: There are loans which are designed mainly for people who have low or no credit score. These loans are known as bad credit loans. Most of the lenders will not be comfortable to offer loans to individuals who do not have a good credit score as there is a risk of them missing on the payments. A low credit score is a sign that the individual does not have this capacity of repayment and thus, these people will find it challenging to find a financial institution or a lender who will provide them with a loan.
A step by step guide to Loans for people with bad credit score
A bad credit loan can save many individuals who do not have good credit scores or zero credit scores. These bad credit loans are generally secured loans which means that individuals have to provide security or collateral like property, financial securities, gold and many more to get the loan.
Reasons to have a low credit score
Credit score will be low because of any of the below-mentioned reasons
- Missing bill payments.
- Not making repayments.
- Failure of the credit application
- Failed to make timely payments of the funds borrowed in the past.
- No history of loan or any financial track record.
Time to get a bad credit loan
You should avail this bad credit loan only when required, which can be like when you are in any of the situations mentioned below
- Your application for the loan has been rejected multiple times by many banks or financial institutions because of your bad credit score.
- You have defaulted on most of your credit card payments.
- You have no other way for the management of your existing debts.
- Your financial situations have now been improvised and you are in a situation now to repay a loan for repairing your credit score.
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Points to remember before you go for a bad credit loan
Before you make a decision on availing a bad credit loan, always make sure that you are remembering the points mentioned below in mind.
- Make sure that you are doing perfect research and also know about the benefits provided by several lenders. Always go for a lender who will offer lower rates of interest.
- Before you consider applying for a bad credit loan, you can check your eligibility to make sure that the application of your loan will not get rejected as that will again cause damage to your credit score.
- Do not forget to check the terms and conditions provided on bad credit loans in a thorough manner so that there will not be any surprises later.
- Make sure that you are evaluating your capacity of repayment before you make a decision on the application for a bad credit loan.
Improving the chances of getting a bad credit loan
Prove that the repayment of EMIs will go well
Though you have a low credit score, banks or financial institutions may provide you with a loan if there is any increase in your monthly earnings. Thus, if you are communicating to the lender that your earnings have raised and you are able to afford the repayment of EMIs, there are many chances of them providing you with a loan.
If you provide a collateral to the lender, the chances to get a loan will increase as the risk which is associated with lender to you will decrease. Banks or lenders will feel a bit confident to provide you with a loan as whenever there are any defaults, they can auction or sell the collateral for recovering the outstanding balance amount of the loan.
Applying for the loan with a co-applicant
When you are applying for a loan along with a co-applicant who is worthy of credit, your eligibility to get a loan will improve. So, whenever you have a low credit score and you are interested to get a bad credit loan, it would be a good idea to apply with a co-applicant.
Difference between secured loans and unsecured loans
If you are having a car or any property which is expensive or a house or any other important asset, then you can consider using it as a collateral. This will also make you eligible for a secured loan as a choice, Secured loans will be provided to you at lower interest rates than the personal loans. Sometimes when you require a huge amount, this will be the one and only option which you will be left with. But always make sure that you are meeting your repayments as there are chances that you might lose any of the assets which you have made collateral.
If you are facing any difficulty to make repayments of your loans, make sure that you are never keeping your house as collateral. You can consider several different factors into consideration before you are turning your unsecured loans to secured loans mainly if you had a bad history of credit. The interest rates will be attractive, but if you are missing any payments, you might lose your asset which you have assigned as collateral.
Unsecured bad credit loans
Unsecured personal loans bad credit are provided to you depending on your creditworthiness. You will not be required to have collateral. You should have a credit score which is high for availing an unsecured loan. This loan is not guaranteed by any property or asset. The rate of interest on the loan is fixed and due at the end of a particular period of time.
For getting an unsecured loan, you will be required to have a high credit score. You should be making all the repayments and payments in a timely manner and there should not be even one default.
Lenders who offer bad credit loans
If you are having a low credit score, you can pledge collateral as it will help you to receive a better deal on loans. Providing collateral will reduce the risk which is associated with lending to you and this, you can also consider negotiating it with the lenders for providing you with lower rates of interest. These loans which are provided against any security or collateral are known as secured loans.
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Anyways, if you are not having any collateral for pledging and are wishing to have an unsecured loan, you may be eligible for a loan if your monthly income is on a higher side and you are working for a reputable firm. In those cases, banks will charge you higher rates of interest and there are also chances of you receiving a lower amount of loan. For example, if you are under general circumstances, your eligibility of loan amount is about 80% to 90%, it will become 60% to 70% due to your bad credit score. There are also many chances that you will be provided shorter repayment tenures which are shorter as banks will only look at getting back the loan amount as early as possible.
Besides the banks, there are two more options which you can try if you are having a poor credit score and want to get a personal loan.
Non-Banking Financial Companies
There are many numbers of NBFCs which will provide you with a personal loan irrespective of your low credit score but there are chances that they might charge a bit higher interest rate. Generally, NBFCs are much more flexible than banks when coming to credit scores. Few NFBCs have provided loans for credit scores which are as low as 360.
There are a few websites for lending which are called as P2P websites. These will provide bad credit loans online up to an amount of Rs.5.5 lakh with tenures which are ranging between 12 to 60 months to people who have a low credit score.
Bad credit score alternatives
There are a few alternatives which you can take into consideration before you choose for a bad credit loan.
- You can get in touch with your current bank or financial institution and ask them to provide you with a tailored loan by listening to your circumstances or situations. The current financial institution may try to help you out regarding this when you are going to a new bank for a loan.
- You can also receive an overdraft on your current account at a rate of interest of 0% for a particular amount. Make sure that you are not crossing the limit on the overdraft as the unarranged overdraft fee will become more expensive.
- Credit Unions which are operated by a community will be able to provide a true alternative to banks to the people who are going through financial difficulties. You will be required to be a member of the credit union for getting the loan. These organisations will be very supportive and their primary intention is for serving their members.
- Credit cards can be considered as the second option which is available for those who are having a bad credit history. There are cards which are dedicated to individuals with bad credit scores. Though they might have credit limits which are lower or higher rates of interest. Also, keep in mind that a failed application will cause damage to your credit card further.
- Payday loans are another option. But it is also advised not to take this loan.
- You can make use of your own savings as long as you will be able to do that. It is always suggested to use the savings than to consider the payment of high-interest rates which are normally charged in loans.
- The government will also provide budgeting loans which are interest-free for the people who are unable to afford their rent. But this will be provided to the people who have emergency requirements of funds.
- You can also consider your family and friends to request for a loan. You can also work out a deal which is mutually beneficial and they this will have a greater understanding than any financial body. You can also accept a feasible interest. Be clear as to how will be able to make repayments as there is a great chance that the relationship may be affected due to this. You can agree on a particular time frame and then commit to it.
- Irrespective of the problems, you can stay away from the sharks of loan. You can get in touch with the current lender and then work on a deal which will save you from defaulting the repayments and also from bad credit. The lender will always provide you and suggest you about increasing your current financial status.
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