Your credit record and history plays an important part in your ability to get financial aid. They speak volumes about your current financial standing, your payment behavior and your capabilities to pay off the new debt that will result from the loan that you are taking out.
Having a poor credit standing does not really mean you will not be able to get a loan. You still can get one but you will find that approval will only come from a handful of sources. These sources will also have a few requirements that you will have to meet prior to the approval of the loan. These requirements will define the type of loan that you can apply for.
A popular characteristic of poor credit loans are high interest rates by the lenders. That is the only way for them to protect their investment as your credit proves that you are not the best handler of finances. They need to secure the loan and make sure that in the event you become a delinquent payer, they will not lose much out of the loan invested on you. So you can expect to see rates around 15% if you have very good credit, 20% to 30% or more if you have bad credit.
It gets even worse if you go for short term loans, also known as payday loan or cash advance loans or even car title loans. You can expect to pay interest rates of 100% to 300% to even 600% APRs!
Different Types of Poor Credit Loans
There are only a handful of loan types that you can apply for if you have a poor credit standing. Here are 4 types that you may be eligible to apply for.
Secured Loans
This type of loan means the borrower should legally possess something that is of the same value as the amount that they want to borrow. This thing of value will be the guarantee of the lender that you will pay off your debt. In case you end up not paying the full or partial amount, they have the right to possess this valuable asset as alternative payment. The security for the lender lies in your fear of losing this asset – which is force you to work hard on paying off the loan.
Co-Signed Unsecured Loans
Other forms of security that will make the lender amenable to lending you money involves getting a co-signor on the loan. This means you need to get someone to be your guarantor. This person will take on the responsibility of paying your debts in case you are unable to continue with the monthly payment. It has to be someone close to you and trusts that you will pay off your debt. This guarantor should have a good credit score. This guarantor will enable you to get better interest rates and possibly a more affordable payment term.
Signature Loans
As mentioned earlier, most of these types of loans have high interest rates. The next type of poor credit loan that you can take is a signature loan that is characterized by high interest rates and short payment terms. It is literally just your signature that holds you accountable for the debt. If you are unable to produce a valuable asset or you cannot find someone to be your guarantor, this is an option for you.
Payday Loans
This type of loan is practically one of the most dangerous and damaging debts that you can take on. The reason for that is the extremely high interest rate that can reach up to 300% or higher. The payday loan is also something that you need to pay for immediately. Some lenders will require post dated checks. Apart from the loan amount and interest rate, this loan also has high service fees associated with it. Also, in case you cannot meet the payment period, the loan will simply be extended but again, that will result to an addition of a couple of fees on top of what you already owe. It is very easy to be buried in this type of debt and you could end up paying double or triple the amount that you loaned in the first place.
Tips When Taking a Poor Credit Loan
When your back is against the wall and you are forced to take out a poor credit loan, be sure to do your research to find the best loan that will satisfy your financial requirements and at the same time, will suit your payment capabilities.
Unless you have no means of paying off your debt, you should stay away from the high interest rate loans like payday loans. It will do you no good if you cannot pay it off according to the original agreement. The same is true for your payment arrangement. Go for terms that you can afford to pay off. Do not base your payment capabilities of future promotions or other uncertain sources of income.
Before opting for a poor credit loan, try to view your expenses and see where you can save on. At the very least, determine first how much you can pay for a new loan before taking one.
When you find that you are buried deep in debt, take heart because there is hope for you yet. National Debt Relief is a company that seeks to help debt-ridden Americans. We encourage you to do something about your financial problems. Give us a call and let us discuss how you can achieve the ultimate financial freedom. You can chat with us online or you can fill out the short form on this page and we will have someone get in touch with you shortly.