You may need a personal loan for a number of reasons, such as to deal with unforeseen medical expenses, to consolidate high interest credit card debt, or even to take a well-deserved vacation. Unfortunately, if you have bad credit or bad credit, personal loans can be difficult to obtain from your local bank or credit union. You can use payday lenders who lend money for short periods of time at very high interest rates, or you can investigate the growing number of online lenders who are focusing on lending to people with a disability. bad credit.
Personal loans for bad credit represent an underserved market, mainly because most banks and credit unions have a lot of business available without tapping into this particular higher risk pool. Many personal loans from traditional banks are unsecured, which means the bank accepts that you have a low risk of default and is willing to lend you money unsecured. Unless you’re prepared to accept a secured loan backed by some form of collateral such as a savings account, CD, or home equity, you typically need a credit score of 680 or more. more to qualify for a personal loan. (The 630 to 640 range is often seen as the defining limit of bad credit, where lending criteria become increasingly stringent.)
Fortunately, innovative lenders are available to offer personal loans for bad credit. They focus on the niche between traditional personal installment loans and short term payday loans. Consider these three examples that define the ends of this niche.
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Before: Avant primarily serves the medium to bad credit range, defined as credit scores from 580 to 700. Installment loans are available from $ 1,000 to $ 35,000 at rates ranging from 9.95% to 36% and repayment periods of 24 to 60 months. Avant also doesn’t charge an upfront set-up fee – a big plus with bad loans.
By keeping the process online throughout the signing of the loan agreement, Avant streamlines the overall loan process. Approval is fast and funds are delivered quickly by direct deposit, potentially as early as the next business day of approval. Avant offers one of the best loan packages available in the market with credit scores from 580 to 700 when it comes to borrowing terms and limits.
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To lend: LendUp targets the end of high-risk loans with bad credit – people who find themselves at the limit of daily cash flow management and sometimes need small, short-term loans just to pay their bills. These borrowers may be tempted by payday loans which can charge interest rates in the range of 300% APR. Borrowers who have difficulty repaying run the risk of renewing the loan and falling into a debt spiral with interest and accrued charges.
LendUp’s initial loans (up to $ 250) also start with high APRs commensurate with risk, but their goal is to keep your debt from growing. Debt-accumulating refinances are not available; instead, LendUp offers a free thirty-day extension. By paying off small loans on time, you earn ‘points’ which lead to lower interest rates (up to 29%) and can access higher loan limits on subsequent loans (up to 1,000. $) with the “LendUp Ladder” program. Points can also be earned through credited education courses. As you move up the ranks, you build a positive payment history while reducing your risk and rebuilding your credit.
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Opp Loans: OppLoans installment loans do not require a large lump sum payment like payday loans do. OppLoans spreads the cost of the loan over regular and regular installments. These fixed payment amounts are more manageable and affordable than payday loans.
Even if you have a bad credit rating and earn a low income, you may still be eligible for an installment loan. Compared to the average interest rates of 300-1200% APR on payday loans, the rates on OppLoans installment loans are much lower at 99-199%. The 36-month average term of their installment loans means your monthly payments will also be lower.
The three examples illustrate an important principle: the higher the risk you represent for the bank, the higher the interest rate on the loan. The interest rates on loans with bad credit tend to be between 20% and 30%. LendUp’s lowest interest rate is towards the higher end of Avant’s, in line with the relative risk their clients represent. Higher credit risk also results in a lower cap on the amount of money a lender will be willing to lend.
It is important to check your credit score before applying for a personal loan to make sure there are no mistakes in your credit profile and that the offers you receive match your true credit history. It takes time to correct mistakes that you find, so be sure to check the accuracy of your credit report well before applying for a personal loan. You can check your credit score and read your credit report for free in minutes using MoneyTips’ Credit Manager.
Lenders take credit scores into account, but they also realize that a credit score is only part of the risk assessment. Careful consideration will be given to your income level and the likelihood that your income will remain stable over the life of the loan. Special circumstances may be taken into account, such as a large one-time medical expense that caused a temporary disruption to your finances. Don’t just assume that a credit score of 640 or lower is the doom of bad credit. If you have any extraneous circumstances that work in your favor, put them to use in your application and see if you can get a lower interest rate.
If you don’t qualify for a traditional loan and can’t afford to pay high interest rates under any circumstances, consider a secured personal loan. Secured loans offer a lower interest rate option for those with poor credit because no credit check is required – the lender has an asset that can be claimed or repossessed in the event of non-payment. However, secured personal loans are limited to the value of the asset (or less, depending on the lender’s policies). You should also weigh the lower interest rate against the risk of repossessing an asset.
Not all lenders operate in all states, and your state may have specific laws regulating bad loans. Check with the lender that they serve your area and that their terms and conditions are compatible with the laws in your state.
No one wants to pay a higher interest rate than they have to, so think about the purpose of your loan before you apply. Is it for debts or upcoming expenses that require immediate attention, or can the loan wait until you have the opportunity to increase your credit score? and get a better rate? Only you can answer this question, but at least make sure you ask the question before rushing into a loan deal.
“Bad credit” does not necessarily mean “no credit”. You have alternatives, but be sure to check them out carefully. Review the terms to make sure you understand all of the potential fees and charges, and calculate the total amount you will pay over the life of the loan. Choose wrong and you could be caught in a seemingly endless cycle of debt. Choose wisely and you could be on your way to improving your financial situation while rebuilding your credit.
If you’re interested in a personal loan, check out our list of the best lenders.
Photo © iStockphoto.com / JohnSommer
