Can You Get a Personal Loan for Bad Credit?
Did you ever know that when you apply for loans, your bad credit can follow you? It’s true.
If you have bad credit, your lender can check your credit scores to determine if they are comfortable lending you money or not.
So this guide is meant to assist and help educate people who are trying to rebuild their credit scores, so they understand what will happen when they apply for loans in the future.
The credit score can make or break a loan approval. If you have bad credit, the loan lender will probably reject your loan application.
Your credit history and reputation will follow you even if you move to another city or state when you apply for loans.
This means that you must maintain your good reputation and high credit scores no matter how many miles separate you from people who know you.
If you think bad credit will disappear when you get your finances in order, think again.
The Problem with Credit Reports
Credit reports, or files, are records of individuals’ credit history — how much debt they have, how long they’ve carried it, and whether they’ve paid it on time.
Lenders use these files to determine whether to approve someone for a loan, a mortgage, or a credit card and, if so, at what interest rate.
Credit reports are used by lenders and creditors in three major ways:
1. As a predictive tool
As you apply for loans and credit cards, lenders check your credit reports to see how you’ve handled past credit. If you’ve always paid on time but haven’t applied for a new loan or credit card recently, lenders will be more likely to approve you.
2. As an indicator of risk.
A lender might look at your credit report, see that you have lots of debt, and decide not to approve you for a loan.
3. As a tool for monitoring your financial behavior.
Creditors and lenders check your credit reports regularly, so they know how you’re doing financially.
If you have a lot of debt but are making your regular payments, your score goes up. However, if you skip a payment or maintain an excessive amount, your credit score will suffer.
Unfortunately, credit reports can be inaccurate and can change your credit score. Most people don’t understand what goes into their credit reports or how to fix incorrect information.
Credit reports typically list information about:
- Payment history. This shows whether you’ve paid your bills on time or not at all.
- Debts. This includes balances on credit cards, medical bills, and loans.
- Credit limits. This figure represents the maximum amount you’re allowed to borrow.
- Credit inquiries. This shows whether you’ve applied for new lines of credit and how many times you’ve applied for credit.
- Credit scores. This figure represents your creditworthiness. Lenders look at this number and decide whether to approve you for credit.
But credit reports aren’t perfect. Some mistakes can cause inaccurate information to appear. For example, if you’re denied a credit card, that denial might show up on your report. That doesn’t necessarily mean you’re a bad credit risk — it just means you were denied for another reason.
Your credit report can be requested for free from each of these three main credit bureaus: Experian, Equifax, Illion
What Does it Mean to Have Negative Items in Your Credit Report?
Bad credit, also known as bad credit history, can be thought of as the “bad guy” in the credit game. A credit score — which ranges from 300 to 850 — is an estimate of how probable it is that you will repay a loan or line of credit.
Creditors use credit scores to help decide which borrowers are more likely to pay back their loans and which borrowers are more likely to default. The higher the score the better.
Bad credit is, of course, the opposite of good credit.
With good credit, you’re generally considered responsible and able to pay back your debts, so lenders are more likely to lend you money.
With bad credit, the opposite is usually true you’re considered a greater risk than someone with good credit.
Because of this, you’ll pay a higher interest rate on loans and credit cards, and finding a job typically becomes more difficult.
Unfortunately, credit is notoriously difficult to fix. The damage has already been done, so it’s not like you can go back in time and fix whatever missteps led to your bad credit.
However, there are these things you can do to get your finances back on track.
Is it Bad to Have Bad Credit?
Bad credit is bad news, but why is it bad? Because it’s a sign that you’re either irresponsible with money or can’t get things paid off or both.
The term “bad credit” refers to credit scores, which are numerical ratings based on a credit report.
Credit scores help lenders and creditors assess your creditworthiness — that is, whether you’ll be a responsible borrower.
Credit scores are dependent on many variables, including the amount you owe, length of credit history, and types of credit you have.
For example, if you have a credit card and a loan with the same interest rate, and you pay the loan off on time, your credit score will be higher than if you just make the minimum payment on your credit cards.
Bad credit problems may seem deadly. Each credit card, loan, and apartment application will have the following disclaimer: “This credit inquiry may have an effect on your credit score.”
In general, your credit score goes down if you have:
- Late payments on previous loans
- Too many loans or credit cards
- Several accounts in collections
- Charge-off or bankruptcy on your credit report
- Too many inquiries on your credit report
- Too many debts
- A history of debt problems
- High debt-to-income ratio (too much debt compared to your income)
- Poor credit quality (many accounts with late payments)
- Too many inquiries on your credit report
Loans You Can Get When You Have Bad Credit
Bad credit can be a big obstacle to building a good credit history. But there are ways you can get financing despite your less-than-stellar score.
Here are a few ways you can get financing with bad credit:
- Lease-option. With this option, a car dealership gives you the option to purchase a car for a fixed price. With this option, you don’t have to put down any money upfront, and at the conclusion throughout the lease period, you have the option of purchasing the vehicle at a set price or walking away.
- Secured credit card. Similar to a prepaid debit card, a secured credit card requires you to put money down.
The sum of money required as a down payment is determined by your credit score. The credit limit is governed by the deposit amount. The card functions similarly to a standard credit card in that you may make purchases, but the amount must be paid in full each month.
- Installment loan. With installment loans, you make fixed payments over a period of time. The terms of these loans usually range from six months to three years.
- Short-term loans. These loans are designed to cover expenses that come up unexpectedly, such as medical bills, car repairs, or home improvement projects. They’re meant for short-term use only and come with higher interest rates and fees compared with other types of loans.
- Personal loans. Personal loans are often unsecured and may be utilized for a variety of purposes. They typically have lower interest rates and longer repayment terms than other types of loans, but they typically come with higher-than-average interest rates.
- Rent-to-own. With this option, you buy an item but don’t need to own the item at the end of the rental. With this option, the company gives you an option to buy the item for a fixed price. Nevertheless, after the conclusion of the rental term, you can choose to buy the item, walk away or refinance.
- Microloans. Microloans are most often unsecured, meaning they don’t have collateral attached to the loan.
Related topic: 5 Things Bad Credit Borrowers Should Never Do!
FAQs on Personal Bad Credit Loans
1. What is the time frame of an application to be approved?
The hard truth is that lenders aren’t required to approve a loan to anyone. However, some do — especially when applicants have bad credit.
Typically, lenders will look at your credit score and credit report and make decisions from there. An applicant with a credit score of 450 may have trouble getting a loan.
2. What are the best strategies to use when applying for a loan with bad credit?
If you’re struggling with a bad credit loan, there are many things you may do to increase your chances of loan approval.
Here are the things you should think about before applying:
1. Prioritize collateral. The collateral is the underlying asset property that the loan can be used to buy. Loan lenders prefer collateral because it protects the lender’s investment. If the borrower defaults or stops on payments, the lender has the right to assume control of the security or collateral and sell it in order to recover damages.
2. Show that you can afford the loan. Lenders want to be certain that borrowers will be able to repay the loan, so they’ll usually ask for your most recent pay stubs.
3. Don’t apply for too many loans at once. As you apply for loans, your credit score can be affected. Applying for several loans simultaneously lowers your credit score by a few points.
4. Pay your bills on time. Late or missing payments may have a damaging effect on your credit.
5. Pay more than the minimum. Paying only the minimum can eventually cause your credit scores to plummet, and you’ll end up owing much more on your loan than you could pay back.
6. Make your payments on time. Late payments can knock a few points off your credit score, so make payments on time to avoid that.
3. How can I quickly pay off my debt?
To get out of debt fast, you’ll have to make a few changes.
First, you’ll have to keep track of all your spending. Write down every expense for a week or two, then figure out what you can eliminate.
Next, try to save more money. If you are already saving 10 per cent of your paycheck, set a higher goal and if you’re already saving 15 per cent, bump up to 20 per cent. If you can’t save more, try charging all your purchases to a credit card with a 0 per cent introductory APR and use that card to pay off your debt.
Finally, cut up your credit cards. Get rid of them and move on. It is unlikely you’ll be able to get out of debt fast, but if you make a few changes now, you’ll be in a much better position going forward.
There is help for you.
It’s hard to find legal help for bad credit, but at Australian Credit Lawyer, we offer Australians with bad credit a helping hand. Our specialist lawyers specialize in bad credit, so you can rest assured that they will advocate for you and are looking out for your best interests. When you are considering taking on a loan, it’s important to weigh up the pros and cons of taking on debt.
While taking out a loan with bad credit can be useful in some situations, it’s important to consider your other options. At ACL, our aim is to help you make smart decisions about your finances.
We can advise you on the different types of bad credit loans and refer you to services that may assist you in managing your bills; we realize how terrible poor credit can be, but you do not have to live with it.
Bad credit doesn’t have to be the end of the world.
If you’re prepared to make an attempt into repairing your credit score, you can rebuild your credit and work towards a more secure financial future.
The good news is that most people with bad credit can repair their credit scores over time.
Find out more information about the best solutions for you. Visit Australian Credit Lawyer.
We offer free legal consultations.
Conclusion
Bad credit can get in the way of your financial freedom and future personal loans if not taken care of. While the immediate effects of bad credit may go unnoticed, you can still lose out on opportunities such as buying a home or even getting turned down for a job application.
It is critical to ensure that your financial mistakes do not leave you stranded and forever affect your money and self-respect.
Therefore, it is crucial to be knowledgeable on how to effectively improve bad credit and begin making amends for previously made mistakes.
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help@australiancreditlawyers.com.au