What you should know about bad credit loans in Canada, the US, etc..
March 11, 2022
Bad credit loans are undoubtedly one sure way a borrower with bad credit history can avoid rejection, credit deficiency , you will have to find a loan that match your credit profile.
What is a bad credit loan?
In this context, a bad credit loan is the amount of money offered to borrowers who credit scores are below 575.
Here’s the catch, bad credit loans often have higher interest rates than the traditional loans, however, can help you improve your credit score in view of positive financial position in the future.
There are online lenders who specialize in bad credit loan for borrowers who have a credit score below 575, kindly check out for these lenders to access a loan that meets your financial requirements.
If you are new to seeking out a bad credit loan in (Canada, the US, etc.) this guide will show you what you need to know about bad credit loans in its entirety.
What range of credit scores are considered bad credit?
According the metrics, a bad credit score is measured between 300 and 575 points, given this your credit worthiness is measured from a scale of 300 to 900.
The credit reporting agencies are saddled with the responsibility to calculate your credit score where in the following are put into consideration,
- How committed and faithful you pay your debts
- The number of credit products you have
- The balances due and accrued
- The length of your existing credit history.
Under the credit reporting arrangement and guidelines, there are essentially five factors that affect your credit score, these include,
- Your payment history across previous loans sourced (35%)
- Your credit utilization and maximization (30%)
- Credit history (15%)
- Credit mix and (10%)
- Credit inquiries (10%)
Your credit score may go bad if you missed several payments on your debts or default on loans against the principles and conditions binding, this can happen to borrowers with good credit history.
Can anyone with bad credit still get a loan?
The answer is a YES, if you have a bad credit you can still get a loan, but a bad credit loan this time. Bad credit in this case does not eliminate you from accessing a loan, however strictly under the bad loan category.
Many online lenders do not prioritize on credit checks instead use different measures to determine your suitability for a loan. They will review other financial details other than the credit score. These details include your
- Your income and
- Debt load
Essentially, with the above criteria, you can apply and get a loan even if you’ve been through the toughest financial situation.
Note: To access a bad credit loan, your credit score should have been from 575 and below, while borrowers with a credit score above 650 have the best chances of qualifying for a regular loans with lower interest rate.
Types of bad credit loans
The bad credit loan is made available under the secured or unsecured loan.
Secured bad credit – Some bad credit loans are secured in the sense that you will need to back it up with a collateral. Collateral could include a cash deposit or other assets of value like car, etc.
The downside with this loan is that it will require a length of paper work and the processing time could be longer than necessary given that the lender would have to access your collateral to confirm its value.
Unsecured credit- An unsecured credit does not require collateral, it’s given on the premise that you will pay back when due in good faith. This may be classified as a high risk loan hereby attracts high interest rate.
Can a bad credit loan improve my credit score?
A standard has been placed to improve your credit score with a bad credit loan in the event that you managed it well responsibly and make a one-time payments.
On the ground that you pay back your bad credit loan without missing a payment, it rebuilds and improves your credit score. However, a late payment compounds your woes.
Having a mix of credit products on your credit history like credit cards and personal loans, a bad credit loan will diversify your credit history, in turn boost your credit score considerably.
Requirements to qualify for a bad credit loan
Traditional lenders will always refer to your credit score to ascertain your suitability in accessing a loan, given this, bad credit loan lenders in turn depend on other factors to determine your suitability to access a loan.
These factors include,
- Your personal income and duration of employment
- Your age
- Whether you are a permanent resident
- Your debt load
- Your minimum monthly expenses (rent, etc.)
- Any dependent relative and their ages respectively
Like the conventional lenders, a bad credit lender is concerned with your ability to repay a loan considering your income, debt load and fixed expenses.
How to apply for a bad credit loan
Essentially, you may not be suitable for a bad credit loan via the traditional lenders like banks and credit unions. You may qualify through a lender that specializes in working with low credit borrowers.
These lenders are usually found online, choose lenders that match your credit profile. Compare lenders terms, rates. Once you got the right loan partner you can start your application.
Where you choose to apply for a bad credit through physical retail lender, you’ll need to research your options online first, read reviews, select a lender.
Schedule an appointment, go there in person with your necessary documents and make an application through a loan officer. Be patient for your application to be approved, this could take days as the case may be.
The process could be time consuming and possibly why online application is always advised.
How long does it take for me to be qualified?
In most cases, you will get approved for a bad credit loan online within 24-48 hours. If you choose to apply for a bad credit online it is usually quick and simple.
Expected interest rate with a bad credit score
Most loans for good credit borrowers are found to be around 5% – 20%. Where bad credits are considered high risk for lenders as such attract high interest rates starting from 20% where some can be higher than credit cards.
Can I get a bad credit loan if I am unemployed?
Income is an essential part of the calculation bad credit lenders put in perspective when reviewing to approve your loan application, it’s unlikely that you will get approved if you are unemployed since your ability to pay back within stipulated frame is highly in doubt.
Most importantly, if you are looking to get a bad credit loan you shouldn’t expect to get the lowest interest rate or the most suitable terms with a bad credit score.
You should most likely consider available lenders and not the rates, look for a provider that offers a loan your score qualifies for, where there are multiple options open to you, compare loan limits and interest rates to find what best fulfills your needs.
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