A good credit score is a prerequisite for availing loans easily because lenders consider it as in index of the reliability of borrowers. People with high scores have a good track record in managing them and hence more dependable to lenders while those with a poor score are risky borrowers about whom lenders have strong reservations.
Different lenders have different methods of considering what constitutes good score, but generally, a score above 700 is good, and anything below it up to 599 is the average score. Going down further can strictly debar people from availing it as lenders consider it high risk to lend them any sum of money no matter how small it might be.
According to creditninja personal loans are mostly unsecured in nature, the score assumes the highest importance in gauging the reliability of borrowers. Low scores can not only limit borrowing options but can even result in denial. However, all is not lost for people with the poor score because many lending companies provide a lifeline to them by providing bad credit loans. It is the same personal payment but with some special consideration.
Bad credits are alternative to traditional loans
They are an alternative to traditional loans because banks and credit unions have strict requirements of good score to approve it of any kind. When someone with poor scores faces any financial emergencies like making payments for medical bills or need cash for meeting the high cost of car repair they would simply not qualify for it from the traditional lenders who use score a yardstick to determine its eligibility. Instead, some other companies that specialize in the personal loan would be willing to give it to them despite bad credit and name it like bad credit loan. The approach is similar to repacking a product to make it look different, whereas all the characteristics of them are the same as any other.
What is good or bad credit score?
Scores reflect the dependability of borrowers to lenders and the good or bad about it depends on the way lenders analyze the score to assess the risk of borrowers. The score that some lending companies consider as a risk for their businesses might not be as much risk to some other companies. However, there are some guidelines to understand the broad distinction between good, fair, and poor score. The score scale ranges from 300 to 850 scores between 700 and 759 is good, and from 760-850 is excellent. The mid-range from 600-699 is fair, and anything below this range can be bad for borrowers as it diminishes the chances of availing it greatly.
Giving a lifeline to borrowers
People with poor credit score must work hard to get it because the closer they are to the 600 marks, there is still some chance of getting it, but the interest rate will be much higher. They must pay the cost of higher interest in case they manage to get any of it approved. The high-interest rate helps to cover the risks perceived by lenders, and it can even be a lesson for borrowers who would be careful to ensure that they improve their score for better borrowing options next time. In fact, bad credit loans give borrowers an opportunity to correct their score and build a positive image that paves the way for better borrowing rates in the future.
Impact of bad credit score on borrowing
Shopping becomes extremely difficult for people with a bad score, but the silver lining is that still, they can hope to get it if they are willing to bear high interest. The options are, of course, much less because only a few companies would be willing to provide bad credit loans, but still, there is some hope that it would be available. Some lending companies offer both secured and unsecured loans to people with bad credit, but unsecured of it is more costly as it carries very high interest. Yet, some types of it can come in handy when people are in dire need of money that should be available quickly.
Types of bad credit loans
Secured and unsecured are the two broad categories of it that have some sub-categories like Bad credit installment, PayDay, Cash advances, and title
Bad credit installment loans – As the name implies, its payment comprises of fixed monthly installments, which is a great relief for borrowers as they do not have to pay it at one go nor immediately. It is a great opportunity to rebuild your score. Since the payment spreads over a long period, you can include it as a part of other monthly bills you pay. Making timely payments can qualify you for rewards too.
Payday loans – When you are in urgent need of cash, it can save your day. The application process of it is simple and fast as the money reaches your bank within 24 hours. However, you must pay back it as soon as you receive the next paycheck. The APR on it is usually about 400%, and you need to plan well before taking it or else it can become difficult to manage.
Cash advances – This is a variant of a payday payment, and consists of issuing a check to the lender for its amount together with lenders fee and interest (annual APR is 400%) and the lender will take the full amount as soon as you receive the next paycheck.
Title loans – You can avail it online or at storefronts, but it is a secured loan with an annual APR of 300%, and you must furnish collaterals. You must pay it back in a few weeks.
While the opportunity of getting it’s despite poor credit is good news, be careful to evaluate the offers with a focus on the payment terms and interest rates so that you can manage it smartly.