For most traditional lenders, the borrower’s credit history is one of the major determining factors for a loan to be approved. A credit history is a record showing how responsible a borrower is in repaying the debt. The credit history contains payments information which shows how the borrower manages his or her debts. This might be a challenge for people with bad credits needing immediate funds for various reasons.
A credit score which is based on the borrower’s credit history, is used by banks and other traditional lenders to determine how likely a borrower can repay a loan. People with poor credit scores will be perceived to have financial management problems which might cause the lenders to reject any loan requested from them.
Now, can people with bad credit take out loans? Definitely, YES. Nowadays, there are various types of loans offered to people with bad credit.
Loans for borrowers with bad credit:
Personal loans
Personal loans are categorized as either a secured or an unsecured loan. In this type of loan, you can usually get the funds you need from banks, credit unions, and online lenders on an installment basis. Although applicable for people with low credit scores, this loan may incur higher interest rates, so make sure you are prepared for any obligation.
Personal loans can offer bigger loan amounts with much longer repayment periods, versus other loans. Borrowers can choose to repay the loan for up to 84 months (about 7 years).
Credit Card Cash Advance
Cash advances are a type of short-term loan granted by the credit card issuing banks to credit card holders. However, the amount of money that can be borrowed has a limit as set by the issuing bank and there are also fees when withdrawing cash from your credit card account.
Payday Loans
For people who are in need of quick cash funding, they can consider payday loans. Even people with a bad credit history can apply for this, for as long as they are employed. Proof of employment will be requested by the lender upon application. A payday loan is a short-term loan type that can often provide $500 loan amount or less. As the term suggests, the due date will typically be on the next payday.
Nowadays, there are financial institutions offering loans to people with low or bad credit scores. There may be a lot of stricter rules but the loan they offer is a great help especially during an emergency. This may also serve as a second chance for people with bad credit history to repair their credit standing. If they were able to fulfill their financial obligations from these lenders offering bad credit loans, their credit score might increase.
Whatever type of loan you are planning to take out, make sure you have enough resources to repay the loan up to the last cent. It would take a lot of smart budgeting and wise planning on how to spend the money that will be left in your pocket after payment, but it will teach you to be a responsible borrower and how to work towards a financially sound future.
