When taking out a loan of any kind, you’ll find how important your credit score is. It is, after all, the basis in which most lenders will decide whether to let you borrow money or not. If you’re thinking of taking out a car loan, but your credit is bad, know that while there are options available out there, they may be significantly limited. Finding the right deal can take a lot of effort and time. But it can be done.
What to Expect From Car Loans for Bad Credit Borrowers
Before you set out to find a lender willing enough to approve your request for a car loan despite your bad credit, know first that the conditions involved may not be as ideal as when you have a good credit score to show. For instance, the interest rate involved will usually be very high. At the same time, the loan terms may not be as ideal, which could ultimately lead to you paying more in the long run.
To apply for a car loan when your credit is bad, you will need to show proof that you have stable employment. Lenders will also need you to show proof that you can really the debt. At the same time, if you have saved up a good sum, you can use this as a downpayment. This will decrease the amount you need to borrow significantly, which increases approval.
If you are not confident that you can get approved for a car loan due to your bad credit, a guarantor is always a choice to consider. You’ll need somebody who meets the income and credit score criteria, and one who is also willing to take on the responsibility of paying the loan back in case you can’t make it in the future.
You can always work on your credit score too. Take time to do what you can to increase it. Pay your bills on time. Get your total amount of debt down too. In a few months, all this effort can result in a better credit score which can lead to better car loan deals.
A personal loan when your credit is bad is generally harder to come by. It is not entirely impossible though. Your options may be significantly limited and the loan offers may not be as competitive, but there are choices available out there for you despite a less than impressive credit record.
Generally, personal loans are offered by banks, credit unions, and online lenders. Considering how banks tend to have rigid rules and procedures when it comes to approving loans, your credit score alone may be enough reason for them to reject your loan application if you were to submit one.
This leaves you with credit unions or online lenders. Credit unions would make a good choice since they are known for their low interest rates even to low credit borrowers. The only downside is that you will need to be a part of the credit union first in order to start borrowing.
Then there are the online lenders. Offering a more streamlined loan application process, they are known to cater to borrowers that are credit-challenged. They can get funds fast too, thanks to their fast approval process, which is ideal for borrowers who need the money quick. The catch though is that they tend to subject borrowers to very expensive interest rates and other loan fees.
You may still refer to a bank to apply for a loan despite your bad credit. You will need to provide them something to minimise the risks involved with the loan you are taking out so they will consider approval. For instance, it is common for credit-challenged borrowers to present collateral to secure a loan. This has risks though since a loan default could result in the collateral getting seized by the bank to pay for the loan balance. Finding a guarantor is also another way of increasing boosting your chances for loan approval despite your bad credit.
When it comes to quick cash fixes, payday loans are often at the forefront of most people’s minds. However, there are other options that may be less predatory and expensive out there that can still offer the borrower a quick monetary fix. For emergency financial needs, one option to consider especially if your credit score is low is a bad credit installment loan.
What are Installment Loans?
An installment loan for bad credit borrowers works very much like a personal loan. The only difference is that it may be charged with a much higher interest rate. Repayment terms can range from 6 to 36 months where it is paid off through smaller payments that will make it more manageable for the borrower.
Higher Borrowing Amount
Whereas payday loans are only able to offer smaller sums, instalment loans offer a much higher figure; this makes it ideal if you wish to cover something that is significantly more expensive. The fact that you can get the costs spread out makes it a more convenient option to pursue.
Higher Interest Charges
Installment loans for bad credit borrowers are usually subject to higher interest rates. They are unsecured in nature which is why lenders will have to take steps to protect themselves against the possibility of loan defaults through higher fees.
It is also advised to shop around and to compare lender offers before signing up for one. You can find the most competitive loan offer out there if you take the time to shop around first. Just ask for soft quotes though to ensure that your inquiries will not end up reflecting badly on your credit score.
Opportunity for Credit Building
If you get approved for an installment loan, it can be a great opportunity for you to improve your credit score. Just see to it that you make your repayments on time. The next time you will take out a loan in, lenders will see that you can manage your debts very well and will be more willing to grant you one.