If you have bad credit, you may find it challenging to get approved for a loan when you need it. Traditional lenders often have strict credit requirements that can make it difficult for people with low credit scores to qualify for financing. However, the rise of online lending has made it easier for people with bad credit to access the funds they need.
Here, we tell you what you may not know about bad credit loans, including the types available and how to manage them upon getting your applications approved. You’ll also receive some insights on how to get online loans for bad credit with help of WeLoans. Finally, we discuss the alternatives should you feel bad credit loans are not best for you.
What are Types of Bad Credit Loans?
Several types of loans are available to persons with poor credit history, but these are some of the most common types:
This loan type is the most common bad credit loan and is designed to provide funding for immediate needs. Typically, the loan amounts are small, and many borrowers repay the loan on their next payday, usually at the end of the month. That’s why they are commonly referred to as “payday” loans. With this type of loan, you can expect to receive the funds on the same day that you apply for them.
To apply for a payday loan, simply visit credible loan platforms like WeLoans, review the available offers, and select the one that best meets your needs. After submitting your application, you should receive an approval within a few hours.
These are secured loans that require you to use your car as collateral. When obtaining a title loan, you will need to provide your vehicle’s title as collateral until the loan is fully repaid. Because the loans are short-term and there is already collateral, lenders typically only perform a soft credit check, which does really put your credit rating into full consideration.
Also called cash advance, these are unsecured loans that are not backed by collateral. They are usually meant to secure funds for a specific personal purpose, like emergency spending or home repairs. Thankfully, they are very short-term and don’t affect your credit score.
These loans are repaid in equal installments over a set period of time. They may have higher interest rates than traditional loans but can be a good option if you need a larger loan amount.
Top Tips for Managing Bad Credit Loans
One of WeLoans’ financial experts, Eric Bank, commented that bad credit loans offer several perks, but that is only when we manage them well. These tips should help you handle your adverse credit debt better.
Create a Repayment Plan
Make sure you understand the loan terms (interest rates, fees, penalties, etc) and create a realistic plan to meet those terms. Consider setting up automatic payments to ensure you don’t miss any payments.
Avoid Taking On New Debt
Try not to take on additional debt while you are paying off an existing bad credit loan. Taking on more debt will only make it more difficult to manage your finances, and may end up worsening your credit history.
Have You Thought About Loan Refinancing?
If you have multiple bad credit loan packages, you can consider refinancing them. Loan refinancing involves taking out a new loan to pay off existing loans. Taking on this new loan package enables you to get a lower interest rate, longer repayment term, or lower monthly payments.
Credit Score Monitoring
You shouldn’t merely take on bad credit loans as a way to get funding for emergency purposes. If you use them correctly, they can help you rebuild your credit ratings and make you more creditworthy than previously. However, for this to be the case, you must ensure you make repayments promptly and avoid accessing more loans. Gradually, your credit score should improve.
Credit counseling services can help you develop a plan to manage your debt and improve your credit score, which can make it easier to get approved for loans in the future.
Are There Any Alternatives To Bad Credit Loans?
If possible, you may want to avoid accessing bad credit loans in the first place. Here, we discuss some of the alternatives available:
Even if you have poor credit, you can still get decent loan terms if you provide security to your lenders. secured loans require collateral, such as a car or a house. This reduces the lender’s risk and may result in a lower interest rate and more convenient terms. However, the downside is that if you fail to repay the loan, the lender may take possession of the asset used as collateral.
Loans from Friends or Family
If it is possible for you to get a close friend or family member willing to lend you money, this may be a good option to consider. This is beneficial because it doesn’t read into your credit history, and default doesn’t affect your ratings. However, it’s important to have a clear agreement and repayment plan to avoid potential conflict.
Use a Home Equity Loan or HELOC
A home equity loan or a home equity line of credit (HELOC) can be a better option than a bad credit loan for several reasons. First, these loans are secured by the equity in your home, which means they may offer lower interest rates than bad credit loans. Second, you may be able to borrow a larger amount of money than you would be able to with a bad credit loan.
However, home equity loans or HELOC may be risky. Since these loans are secured by your home, if you fail to make payments, you could risk losing your home.
A Lender That Doesn’t Consider Credit
Some financial institutions are willing to look past credit scores and consider other factors when making decisions on who to lend money to. Things they consider may include bank statements and payslips to confirm that you have an income and would be able to pay off the loan, even if your credit score is less than ideal.
However, it’s important to be cautious and do your research before working with such lenders. Many lenders that offer loans without checking credit tend to have higher interest rates and fees, which can make the cost of borrowing much higher than with a traditional loan. Additionally, some of these lenders may engage in predatory lending practices, such as offering loans with hidden fees or using aggressive debt collection tactics.
Bad credit loans offer you several benefits, but you will only realize those perks if you manage the loans properly. Here, we have discussed the available bad credit loan options you can access. Then, we have offered actionable advice on managing those loans after you secure them. Finally, if you desire other options besides bad credit loans, then check out our recommendations.