Are you planning to buy a car? Or have you finally decided to get your own house?
Usually, significant purchases involve taking out a loan. But, before you qualify for a loan, you have to request a copy of your credit report, which states your credit score. The higher your credit score, the higher your chances are of qualifying for your preferred loan amount and interest rate. The two popular credit scoring organizations usually consider anything above 650 as a good credit score.
When you score below 650, you’ll struggle to qualify for loans. Fortunately, there’s still a way for you to borrow money despite a poor credit score.
Enter: Bad credit loans
Poor credit financing, or bad credit loan, is a type of loan for people with weak credit scores, usually below 650. This type of loan covers funding for car loans, credit cards, emergencies, and small business loans. Unfortunately, not many poor credit lenders provide loans for mortgages because of the high risk involved.
Aside from allowing you to borrow money for buying or investing, poor credit loans help build and improve your credit score. If you keep paying back the amount on time, you may qualify for regular loans. You won’t need to apply for credit financing anymore.
Considerations before applying for poor credit financing
Before you apply for poor credit financing, take note that it is relatively expensive in the long run. Lenders take on more risk by lending to people with weak credit scores, so they usually charge a higher interest rate. This means that you would have to pay more for a poor credit loan than you would for a regular loan.
Another disadvantage of bad credit loans is that they usually require a higher down payment. Even if you’re buying a used car in a lot in Tulsa instead of a new one, you need to pay more upfront when you opt for this type of financing.
Getting a bad credit loan
Poor credit loans work just like personal loans, in which you borrow money and pay it back in fixed installments. You may apply for one at a bank, but you’ll find more affordable interest rates and flexible requirements at these options:
- Co-signers, in which you use someone else’s high credit score to qualify for a bad credit loan
- Credit unions
- Family and friends who can lend you money for a lower interest rate, or none at all, if you’re lucky
- Home equity
- Peer-to-peer lending
After you get the loan, what now?
Like all loans, you have to pay off the amount you’ve borrowed. Make sure to pay on time. It would be better if you overpay monthly installments to pay off your loan quickly. Paying more than the amount you owe each month also improves your credit score.
One last thing: Don’t apply for new credit while you’re paying off your bad credit loan. Doing so could affect your credit score and reduce your chances of qualifying for a regular loan.
Don’t feel discouraged when you have a weak credit score. With bad credit loans, it’s possible to get the money you need. However, it would be better not to rely on poor credit financing all the time. Pay your loan on time and improve your credit score so that you have access to better loan terms and interest rates.