Getting a loan is a big step financially, and it shouldn’t be taken lightly. There are a lot of things to be considered when applying for a loan, especially if you have a poor or bad credit score. A bad credit score decreases your chances of getting a loan from a bank or financial institution. Although, bad credit prevents you from getting even a small personal loan, the lending industry has become more diverse. There are plenty of options available for getting a loan with bad credit score.
The growth of the online lending marketplace has inspired a lot of non-bank lenders to provide loans to customers with bad credit. The loan options for bad credit have increased significantly. While the requirements to qualify for a loan with bad credit still depends on your financial situation or the type of loan you get, your options for finding a lender according to your requirement is better than ever. Listed here are a few types of loan that you can avail even if you have a bad credit score
- Short-term cash advance loans or payday loans
Payday loans are best for emergency purposes. These are short term loans Michigan usually repaid in a single lump sum along with interest and fees. It has to be repaid on your next paycheck or the term can be as short as 1 week.
- Long-term installment loans
The long-term installment loans can be obtained to finance larger obligations. The term of this loan ranges from 3 to 6 months and repayment is made every month through installments. They offer better interest rates than credit cards.
- Auto loans
If your bad credit is holding you back from buying a car, you can opt for auto loans. Many auto loan providers offer initial as well as refinance auto loans. The basic requirements for availing auto loans include proof of income, employment of at least six months, and personal references.
- Mortgage refinance loans
Mortgage refinance loans refer to taking out a new mortgage with better interest rates to pay off your current mortgage. It offers a way to lower your interest rate, reduce your installment amount, or the term of your loan. The requirements for these loans include your proof of income, credit score, and down payment requirements.
- Peer-to-peer lenders for business
This loan can be taken for debt consolidation, to start a business, or to purchase a car. These loan providers offer a fixed rate, limited-term loans, and don’t require any collateral.
Payday Loans – The Best Source for People With Bad Credit
When compared with all the other types of loan mentioned above, a payday loan is considered the best when you have a bad credit score and in need of instant cash. It can help you cover an unexpected, emergency expense like medical expenses, home repairs, loss of a job, vehicle repairs, and more. Payday loan lender doesn’t perform a stringent credit check and you can be assured to get your payday loan approved irrespective of your credit score.
Things to consider before applying for your first payday loan with bad credit
Before you apply for a payday loan, it becomes crucial to understand the payday loans as much as possible so that you don’t fall into the debt trap.
- Know the purpose of getting a payday loan
To begin with, the most crucial factor you need to consider before applying for a payday loan is to know why you need this loan. Payday loans are designed for short-term and emergency purposes only. So, you need to think of them as a loan that needs to be paid back in full in a short period. If you already have a default payday loan, paying back your loan becomes more expensive.
- Calculate how much loan amount you need
Now that you’ve determined why you need to take a payday loan, the next step is to determine how much money you need to borrow. This is important because any extra amount you borrow will only increase the burden of repayment. Moreover, certain lenders offer only a limited amount as per their terms and conditions. So, if you decide the loan amount you can choose your lender based on that.
- Know your affordability to payback
You will need to think about how much you can afford to pay back. Just because you can meet all your monthly expenses, it doesn’t mean that you can afford to pay a higher loan amount. Understanding how much you can pay back will let you decide on the term of the loan.
- Read the terms and conditions carefully
Whether you apply for a payday loan online or offline, it is important to read the terms and conditions of the loan agreement carefully. Each licensed lender will have a set of rules they must follow. Before taking out a payday loan, you must be comfortable with the terms and conditions of the lender.
- Ensure that you borrow from a legitimate payday loan lender
While choosing payday loan lenders, ensure that they are licensed and direct lenders. They must comply with the law and their interest rates should be within the approved limit. There should not be any hidden fees and must have a customer service portal.
- Know how it can help improve your credit score
Any payday loan that you get will be reflected in your credit report. You might think that applying to different payday loan lenders at the same time will increase your chance of getting the loan. Sadly, this will create a negative impact on your credit rating. This makes the lenders think that you are in an unstable financial condition.
On the contrary, if you pay back your payday loan in full and on time, it will leave a positive impact on your credit score.
Here are our quick tips for your first loan with bad credit
- Draft a monthly budget, so that you never miss your repayment.
- Do not apply for another loan while paying off the current loan. This will add pressure to your repayments and damage your credit score further.
- If you’re unable to make the payment on time, talk to your lender, and discuss your other options.