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Most lending companies have a lot of qualification requirements to ensure the loan will be repaid, thus minimizing risk. As such, they would offer reasonable rates and less strict requirements for those with stellar credit ratings and unfavorable terms to those with bad credit scores.
With limited financing options, it sounds discouraging and stressful to apply for a loan if you have a bad credit score. But don’t fret! You could still apply for a loan even if you have bad credit. Keep reading and check the loans you can apply for in 2021.
What Exactly Are Bad Credit Loans?
Lending companies offer bad credit loans to those people with fair to bad credit scores or limited credit history. The terms and offers vary depending on the type of bad credit loan. It can be either secured or unsecured. The secured ones are the loans that are backed by collateral, while the unsecured have none.
Lending companies use credit scores defined by credit bureaus to determine the creditworthiness of a person. Mostly, FICO scores are the commonly used credit scoring system among lending companies. Based on the FICO score range, the fair credit score ranges from 580 to 669, while the poor credit score ranges from 300 to 579.
It is crucial to be mindful of credit scores because they can highly influence interest rates and fee charges when applying for a loan. Moreover, bankruptcies, missed payments, and huge debts do contribute to low credit scores.
Payday Loans
For people with a poor credit rating or short credit history that needs money immediately, online payday loans are a great option. The application process is fast and easy because credit scores and history are no longer necessary for loan approval.
Payday loans are short-term that are payable on the next payday. However, some lending companies may request access to the borrower’s bank account to withdraw the borrowed money on the next payday. It may be beneficial when having a budget deficit, but this loan is costly, which bears a considerable risk for the borrowers.
Pawnshop Loans
Pawnshop loans demand to commit valuable items in a pawn shop in exchange for money. As a condition, the loanable money will depend on the item’s value assessed by the pawnshop. The pawn shop will have the item until they receive a repayment with interest.
After paying the loaned amount, the borrower can recover the item. However, if the borrower cannot repay, the pawnshop will take the valuable item and sell them in an auction. This type of bad credit loan may be less risky than payday loans, but losing a valuable item in pawnshop loans is highly likely if you default on payments.
Car Title Loans
Like a pawnshop loan, a car title loan requires committing a car title in exchange for money or a loan. Unlike payday loans, car title loans have qualification requirements. However, it is still possible to avail of these loans despite having a poor or fair credit score if the debt-to-income requirements are acceptable.
Moreover, the loanable amount will also depend on the value of the car. The borrower has to pay the loaned amount with interest to recover the car title from the lender. Otherwise, the lender will take the car title. This type of loan is very costly and risky because interest rates are high, making it difficult to pay off and recover the car title.
Federal Student Loans
Federal student loans are intended to finance university expenses. Therefore, it is best for students who cannot pay higher education fees due. Unlike private student loans, it does not require credit scores although some lenders may require co-signer to qualify.
Thus, it is easier to borrow money. Moreover, there are a lot of repayment options to choose from. Public service can also pay for the loan if the borrower cannot repay its monetary amount.
Conclusion
Not all borrowers who avail bad credit loans are drowning in debt. Even with a poor credit score or limited credit history, options are still available to choose from and compare. Moreover, loans are there to ease the financial burden for the meantime and not for a lifetime.
Thus, it is essential to consider the risk to avoid the cycle of debt. Financing options for those with bad credit scores may be limited. However, this does not mean borrowing money whenever there is an offer—a loan at your own risk.
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