Everything You Need to Know About Bad Credit Loans

Many business owners and consumers alike believe that a poor credit score is an automatic loan disqualification. Fortunately, that’s not the case. While it is true that an excellent credit score will likely get you a low-interest rate loan with favorable terms and conditions, you may still qualify for a bad credit loan even if your score is low. 

There is a market for everything nowadays, even people with poor credit scores. Bad credit loans are offered to individuals with low credit scores. Borrowers also have many options available with respect to bad credit loans. Customers do not need to rely on traditional bricks and mortar banks for these loans, as most of these providers offer their services online. 

Paper documents aren’t required for bad credit loans; borrowers simply need to be scan and upload PDF files to the lender’s site to apply for these bad credit loans. With greater flexibility (better terms for repayment, and flexibility with APRs), bad credit loans are increasingly being adopted as viable options for managing debt. The experts for Bad Credit also covered this topic at bestloansforbadcredit.com with fascinating insights into the subject matter.

What are the Benefits of a Bad Credit Loan?

You may have bad credit for any number of reasons. Perhaps, you don’t have a long enough credit history, or you simply have a low credit score. Whatever the reason, low credit scores are common and they shouldn’t prevent you from applying for a much-needed loan. 

Once you understand the reasons for your low credit score, you can chart a course to rebuild your credit score over time. Believe it or not, a bad credit loan is one such step that you can take to rebuild your credit score. There are two primary types of bad credit loans – secured loans which are backed by collateral, and unsecured loans which aren’t. 

Bad credit loans offer the following benefits:

  • They are flexible and can be tailored to your specific requirements provided you work with the right lender.
  • Borrowers can opt for a lower-interest-rate secured bad credit loan, or a higher-interest-rate unsecured bad credit loan.
  • Bad credit loans are usually provided quickly – much quicker than a bank loan which requires mounds of paperwork, credit approval, and long wait times.
  • There are various types of bad credit loans, including Home Equity loans with fixed instalments, HELOCs with variable interest rates, Bank Loans, and Cash Advances.

What Qualifies as a Bad Credit Score?

FICO credit scores range between 300-850. FICO stands for the Fair Isaac Corporation. Many lenders use FICO scores to determine your creditworthiness. Based upon the numbers, the following credit ratings are assigned to these credit scores:

  • 300 – 579 – Very Poor Credit Score
  • 580 – 669 – Fair Credit Score
  • 670 – 739 – Good Credit Score
  • 740 – 799 – Very Good Credit Score
  • 800 – 850 – Exceptional Credit Score

It is fair to assume that a credit score between 300 – 579, which represents 16% of people in the FICO system make up many of the bad credit loan applications. 

Another ratings system which lenders use (Made up of credit scores by TransUnion, Experian, and Equifax) is the VantageScore. The numbers are similar to FICO ratings:

  • 300 – 499 – Very Poor Credit Score 
  • 500 – 600 – Poor Credit Score
  • 601 – 660 – Fair Credit Score
  • 661 – 780 – Good Credit Score
  • 781 – 850 – Excellent Credit Score

Why do Lenders Offer Bad Credit Loans?

Someone with bad credit is not necessarily untrustworthy. Credit scores are affected by a number of factors. You may not have had a credit history for very long, or you may have inadvertently applied for too many new lines of credit recently, or your debt to income ratio may be too high. Bad credit lenders understand that banks are not willing to cater to this market, so they have stepped in to fill the void. 

Most bad credit lenders today offer their services completely online. Not only do they have flexible interest rates (APRs), but they offer easy terms for repayment. Bad credit loan lenders don’t worry too much about your credit history because other factors are more important. Your pay slip is much more relevant. Other factors they look for include income/expense ratios, and collateral which serves as a guarantee that payment will be forthcoming.

The Symbiotic Relationship that Benefits Lenders and Borrowers

People understand that bad credit lenders are often their last line of defense against mounting bills and bankruptcy. It’s possible to reapply for a bad credit loan, to increase the term of the bad credit loan, or to defer payment, if hardship strikes. For all of these reasons, lenders and borrowers work together to ensure the viability of this option. 

Perhaps the biggest benefits of bad credit loans are that you can rebuild your credit, pay off your debts, and ultimately put yourself into a much stronger position to apply for a competitive loan at a much lower rate of interest in the future.

A caveat is in order: Always compare the products of different lenders, with particular attention to the terms of the loan, the interest rates, the penalties for early payment or late payment, and other options that are available to you.

Digital Team