Are you worried your low credit score will hold you back from getting the financial help you need? Whether for an unexpected medical bill, car payment, or just a family vacation, we all experience moments in life when a rapid approval personal loan would really come in handy. But what if you have a bad credit score?
Poor Credit Loans Explained
Through poor financial habits like missed loan payments, maxing out credit cards, or filling out too many loan applications, your credit score could be lowered to 600 or under. However, every financial institution wants to ensure their borrowers are able to pay back what they owe, and lenders often view borrowers with bad credit as more likely to struggle to pay their debts.
Although a bad credit score could make it more difficult to find an affordable loan, it isn’t impossible. Poor credit loans are specifically tailored to borrowers who have difficulties qualifying for traditional loans due to poor credit or a history of financial issues.
Lenders typically offer these loans at a higher interest rate than traditional loans to compensate for the added risk they’re taking on by approving loans to individuals who could default on their payments. Despite the higher-than-average interest rates, bad credit loans have proven to be a lifeline for many individuals in emergency situations.
When you consider applying for a bad credit loan, it’s important to carefully weigh the pros and cons before making a decision.
Pros of Poor Credit Loans:
- Provides a financial solution for anyone with poor credit
- The monthly payments are a fixed amount
- On-time payments will help improve the borrower’s credit score
- Several types of poor credit loans are available to fit every borrower’s needs
- Rapid loan approval within days or even hours
- Provides quick access to funds in emergency situations
Cons of Poor Credit Loans
- The interest rates and fees are high due to the riskier nature of these loans
- There’s a higher potential for creating a debt cycle if difficulty repaying loans leads to borrowing more money
- Late payments and defaulting on loans can further hurt an already poor credit score
- Persons with the lowest credit scores may not qualify
- Collateral or a co-signer may be required in some cases
Types of Bad Credit Loans
With a low credit score, it might seem like there are limited options for getting a loan. However, there are several different types of quick loans for bad credit. The following are six of the most common bad credit loans and what you need to know about each one.
- Unsecured Loan: This type of loan doesn’t require the borrower to present any collateral. The lender determines eligibility based on the borrower’s credit score, income, and cash flow. Unsecured loans typically have a higher interest rate but are useful for large expenses or for debt consolidation.
- Secured Loan: This type of loan requires the borrower to pledge collateral in order to borrow money. It offers a lower interest rate than an unsecured loan and is typically worth the risk of pledging collateral.
- Co-signed Loan: This loan requires someone, known as a co-signer, to vouch for the borrower’s ability to repay their debt. While the interest rate is lower with this type of loan, the co-signer also assumes a risk if the borrower cannot repay the loan, as the responsibility would become theirs.
- Joint Loan: This is a loan taken with two borrowers where they both assume responsibility for repaying the loan and are both granted access to the loan amount.
- Payday Loan: These loans typically have a repayment period of two to four weeks and are secured by the borrower’s paycheck. The average interest rate on a payday loan is over 300%. While these are very expensive, they provide rapid approval personal loans to borrowers who don’t qualify for anything else.
- Title Loan: This loan only applies to borrowers who own a vehicle. The borrower can apply for 25 to 50 percent of the vehicle’s value by handing over the vehicle’s title as collateral until the full cost of the loan has been repaid.
Choosing the Right Quick Loan for Bad Credit
With so many options available, it’s important that you choose the right loan for your financial situation. The following are a few important factors to consider when applying for a poor credit loan.
- Annual percentage rate (APR): The APR of your loan is the true cost, including the interest rate and any fees you will pay throughout the lifetime of your loan. Knowing your APR will help you to better understand the full cost of the type of loan you choose.
- Repayment terms: Each loan has specific repayment terms based on the type of loan and amount approved. In order to successfully repay your debt, your monthly repayments should be an amount you can comfortably pay.
- Additional fees and penalties: It’s important to thoroughly read the terms and conditions of your loan and take note of the late fees, prepayment penalties, and any other additional fees associated with the type of loan you choose.
- Opportunities to build credit: Successfully paying off quick loans for bad credit should allow you to improve your credit score. Before applying, find out if the lender reports payment to the credit bureaus.
What To Do If You’re Denied a Loan
Getting denied a loan can be disappointing, but there are steps you can take to improve your chances the next time you apply. If you don’t receive a clear explanation of why your application was denied, you first need to find out why you were denied and then take the necessary steps to resolve the issues.
One of the main reasons that borrowers are denied is poor credit or a lack of credit history. If you’re denied for either of these reasons, you could build your credit history, improve your credit score, or find a cosigner with a high credit score and a low debt-to-income ratio.
Lenders need to know how much of your monthly income is going toward paying off debts. You’re likely to be denied if a loan would increase your monthly debt-to-income ratio to 40% or above. Try paying down on current debts or increasing your income before applying for another loan. Additionally, you can choose to request a lower loan amount that would better fit into your budget.
Red Flags for a Bad Credit Loan Scams
When applying for quick loans for bad credit, one risk to be aware of is potential scams and dishonest lenders. The following is a list of red flags you need to be aware of when filing an application for a poor credit loan.
- You’re offered guaranteed or instant approval without a credit check
- You receive unsolicited offers from companies targeting people with poor credit
- There’s no disclosure of fees or interest rates
- The organization is unlicensed
- The lender requests unconventional payment options
- The contact information of the lender cannot be verified or is incorrect
By remembering these guidelines, you can reduce the risk of falling prey to a scam. However, most importantly, if a poor credit loan sounds too good to be true or something feels off, it’s always better to walk away.
Frequently Asked Questions
Are bad credit loans safe?
Yes. Although these loans have a higher interest rate than other traditional loans, as long as you select the right lender and repayment plan for your needs, poor credit loans are a legitimate way to access the finances you need.
Can I get a rapid approval personal loan with no credit check?
Some lenders will offer loans without performing a credit check. These loans are known as no credit check loans and come at a much higher interest rate than other bad credit loan options. A lot of research is required into an organization before applying for a no credit check loan. This option would be a much higher risk for you and could potentially be offered by an untrustworthy lender.
Can I improve my credit score with a bad credit loan?
By making consistent, on-time payments, these loans could help improve your credit score over time.
What happens if I default on a bad credit loan?
You can face serious consequences for defaulting on these loans. While these loans have the potential to improve your credit score, they also have the ability to do the opposite. In addition to lowering your credit score, you could be saddled with additional fees and face legal action. Also, the lender could collect any collateral used to secure the loan.
What is the best loan company for bad credit?
There isn’t any specific company that offers the best rapid approval personal loans. The only way to find the best loan for you is to compare the interest rates, fees, terms, and reviews of multiple lenders and select the best one for your budget and situation.
Conclusion
Poor credit loans are a great option for people who have difficulty qualifying for a traditional loan. While they typically have a higher interest rate than other loans, they can provide a quick source of income whenever there’s an unexpected expense or emergency.
If you have bad credit and you’re considering applying for a loan, be sure to do your research, compare your options, and read the terms and conditions before making a decision.
