Bad Credit Personal Loans: Things You Need to Know

Sometimes it’s necessary to take out a loan when you’re faced with an urgent expense that you can’t cover with the money you have in your savings. Important expenses like home renovations, car repairs, and medical bills are a few of the examples that may require you to undertake a debt.

One of the best loan options you can get now is a personal loan. This loan type provides a lump sum of cash to borrowers, and it has to be paid back in monthly installments. Some borrowers also use this loan option to consolidate debts that have high-interest rates.

Moreover, a personal loan is popular with people who have poor credit scores. Some lenders of personal loans are not strict when it comes to your credit as long as you have a regular source of income. You can check sites like Budget and Invest or read this information below to know more about personal loans for bad credit.

Where to Apply for a Bad Credit Personal Loan?

Mainstream banks offer personal loans, but the catch is that most of them have strict credit checks that make it hard for borrowers with bad credit to get approved to borrow money. If you want to get a bad credit personal loan, it’s a good idea to check out an online lender or visit your local credit union for that purpose.

Online lenders and local credit unions offer personal loans for bad credit with a simple application process, no credit check, and fast approval. When looking for this type of loan, you should compare the eligibility requirements, terms, interest rates, fees, and loan amounts by different lenders.

How to Qualify for Bad Credit Personal Loan?

Every loan provider has its own set of standards when it comes to checking the qualifications of a borrower of a personal loan. It’s a common thing to encounter lenders that will evaluate your credit report and credit score as part of the loan application process.

If you have a credit score of below 600, it will be difficult for you to qualify for a personal loan. Keep in mind that some loan providers have stringent standards when you borrow money, and it’s especially true with traditional banking companies and institutions.

That’s why online lending is popular among borrowers with poor credit because of the lenient and flexible qualification requirements. Take note that it’s not only the credit report that can be evaluated by loan providers when you’re applying for a loan. Lenders can also look at the income amount, income frequency, and employment of the loan applicant.

Lenders of bad credit personal loans actually do that without (or just a minimal) credit check. In this way, they can decide whether to approve your loan application or not based on the capacity you have in repaying the loan.

Aside from your source of income and employment, lending companies that offer bad credit personal loans may also use your utility payments and bank account information. So, if you have bad credit, you can go to an online lender or credit union to borrow the amount of cash you need because credit checks are non-existent or not that strict.

Costs of Taking Out a Bad Credit Personal Loan

The costs of taking out a bad credit personal loan may vary from one lender to another. However, compared to people with good to excellent credit scores, a personal loan for bad credit may cost more for people with poor credit scores.

The average rate of interest for a personal loan with a loan term of 24 months is 9%. But, if you have a below 600 credit score, the annual percentage rate of your loan can be high. Also, if you take out a personal loan through a traditional bank, there’s no origination fee. But getting the same from an online lender may require you to pay extra fees.

Online lenders impose ancillary charges like origination fees because of the fact that many of their customers are high-risk borrowers. The extra fees will serve as a security that they can still profit even if the borrower defaults on the loan.

So, you need to think twice if a bad credit personal loan is right for you. You should put importance on your credit score when applying for any loan to avail of lower interest rates and fees. It’s also crucial to consider the loan amount and loan term because these factors can also affect the costs of your loan.

Takeaway

Having a bad credit score can indeed make it difficult for you to obtain a loan from a traditional bank. But thanks to online lenders and credit unions, you can now borrow cash even if you have a poor credit score. However, you need to take note that the costs of a bad credit personal loan can be higher than regular personal loans.