5 Things You Should Know About a Bad Credit Loan
There are millions of Americans walking around with poor credit. It's estimated that nearly 70% of U.S. adults destroy their credit before their 30th birthday. At this rate, there will be more people with poor credit than good credit in just a few short decades.
America is a capitalistic country, which means you need good financial standing and credit rating to really succeed. The same holds true whether you're applying for credit as an individual or business. Yes, there are credit ratings for businesses as well.
If you're one of the many who's dealing with a low credit score but need funding, you may be in need of a bad credit loan. The following will help guide you through the process of finding one.
What is a Bad Credit Loan?
Those who've had bad credit for some time now know about loans designed specifically for folks with blemishes on their credit report. These loans are like any other loan, except they come with higher interest rates.
The terms of the loans vary, but most are short-term. You can find some as short as one day, a week or one month. These are known as next-day and payday loans.
The great thing about a bad credit loan is that it gives you immediate access to the funding you need. So if you're in the market for some capital, then here are the things you should know before you get a loan.
1. The Interest Rates Are Substantially Higher
If you know anything about finance, you know lenders make their money off the terms of their loans. But since short-term loans are shorter, it cuts away the money maker. So to make up for it, bad credit loan lenders tack on an interest rate that's a lot higher.
In some cases, you can end up with a rate that's 80%. However, there aren't many bad credit lenders that hike their rates this high. In most scenarios, you can expect to pay about 10% more in interest rates.
Since you're considered a high-risk applicant, the higher interest rate makes lending to you worthwhile.
2. The Down Payments Are Higher
Say you're looking for a bad credit loan to purchase a car or home. In this case, you would need to put down a down payment. In a perfect world, you would have good credit and a low down payment.
But the reality is you don't, so you're stuck with paying a much higher down payment. To the lender, the down payment is a safety net. It shows you have the means to take their loan seriously. And if you default early on, they at least get something out of it.
It's also believed that higher deposits make you less likely to default on the loan. The down payment is an investment, which is lost if you default.
3. Smaller Car Selection
Buying a new car is a luxury many of us can't afford. However, this doesn't stop us from trying. Without good credit, this is nearly impossible to achieve. In fact, when you have bad credit, there's a special area of the dealership lot that has vehicles just for people like you.
So don't waltz into a dealership thinking you can have your pick of the lot. The reality of it all is that you're going to end up with a set of wheels that is used and has a high mileage. However, the cost for the vehicle will be exceptionally lower.
4. The Terms Are Shorter
The terms associated with bad credit loans are normally shorter than your typical loans. In some instances, the loan terms are between 24 and 48 months. This seems like a long time, but it's very short compared to those that are 10, 20 or even 30 years.
And because the loan length is shorter, the higher your monthly payments will be. So keep that in mind when you're shopping around for a bad credit loan.
5. Down Payment Assistance May Be Impossible to Get
A lot of people rely on down payment assistance to help them get approved for a loan. However, there are eligibility requirements to be approved for funds. For instance, you have to have a 640 credit score.
But since you're already considered a bad credit candidate, you can throw this option out the window.
Improving Your Chances of Approval
Although bad credit loans are made for people with poor credit rating, there are cases where you can be denied. After all, lenders are looking out for their financial institutions. So if you want to make your application shine, there are some things you can do.
For example, you can lower your debt-to-income ratio. As a rule of thumb, your ratio should be 45% or below when you have poor credit. Those with a better credit rating can get away with a ratio in excess of 54%.
Then to get better deals, you can begin working on your credit. The better your rating, the lower your down payment will be and the easier it will be to get approved. You can start improving your score by paying down the debts you owe (or disputing the ones that are inaccurate).
Apply for a Bad Credit Loan Today
There are many reasons why you may need to apply for a bad credit loan. You may need it for emergency medical expenses, unexpected bills or to fund a new business idea.
Either way, it's important to read the fine print of the loan terms you're considering to ensure you agree with them. This will cover the interest rates, fees, penalties and repayment terms. Do the math to ensure you're capable of making the payments on time.
At WireLend, we offer unsecured installment loans. You can apply from anywhere in America and get approval. The process is done completely online, so it's quick and easy. You will get a no-obligation quote and instant approval.
If you need quick access to funding, stop by WireLend.com today to apply for your bad credit loan!