Personal loans for people with bad credit
This blog by crefite explains how to get unsecured loans for people with bad credit
Life can take unexpected turns. Sometimes, we may need helping hand with our finances even when we know that the credit history is bad. What can you do in such a situation? We at Crefite can help you. If you are looking for answers to your financial woes, read on..
What is a bad credit loan?
Bad credit history can ruin your chances of getting a loan. It is indicated by a bad credit score provided by CIBIL. For lenders, it means the borrower carries a high credit risk. Hence, it is not easy to get a personal loan with bad credit
. Bad credit history can be due to following factors :
- a. You have defaulted in your loan repayments,
- b.You have pending bills to pay, or
- c.Your credit card has already reached its spending limit.
- d.You have never borrowed in the past, hence have no credit track record.
Why should you consider a bad credit loan?
Taking out a personal loans for people with bad credit is not an easy decision. You may already be reeling under the financial pressure. But after all, it may make sense in the following situations:
- 1.You are considering a credit card debt consolidation: This would help you swap an expensive credit card loan with a very reasonable interest personal loan.
- 2.You want to re-structure your cash outflows and repayment obligations: You may have multiple small loans with different repayment dates and you are looking to restructure it.
- 3.You know some of the cash is going to come in to help repay part of the loan outstanding in your account: It is never a good idea to use up all of your credit availability. It will adversely affect your credit score.
- 4.You know your application will not get rejected: Loan applications getting rejected can impact your credit score adversely. so, research well before making that loan application.
What is a secured loan? How is it different from an unsecured personal loan?
A secured loan is one where loan is granted against a security like a property or a car. Hence, the rate of interest may be lower. If you are really in need of funds, this may be a good idea. However, ensure that you make loan repayments on time. Else your pledged security would be taken away by the financial institution. If it's your home you are pledging, be doubly sure not to default on the loan instalment repayments.
Taking an unsecured personal loan may be tougher with a bad credit history. Since it does not have a collateral, the unsecured loan interest rates are higher. To avail this kind of a loan, you must maintain a good credit history and an excellent repayment record.
Ways to get a bad credit loan?
There are several options one can explore to get a unsecured bad credit loans. Consider one of the following options:
Borrow from Family or Friends
This is a good option. It would give you flexibility over repayment and possibly a lower rate of interest than what banks and financial institutions may charge you. Even in thisi sort of funding, it is always prudent to get a legal document signed to have clear view of the terms of loan and avoid any problems in future.
Get a co-borrower/guarantor
Try and get someone in your family or among your friends to co-sign your loan application. Such a person should have a good credit history and will help you improve your own credit rating if you make all your repayments on time. But be watchful that if you do not meet your loan repayment obligations on time, you would also hurt your co-signor's credit rating in the bargain.
Get a secured personal loan
You may consider taking out a loan against your own property. Since you would be pledging your owned property like a home or car or any such asset as collateral, your rate of interest would be lower than the personal loan. Here again, be watchful that if you do not pay your loan instalments on time, the bank or financial institution will take away your pledged property.
Leverage your current account banker
Talk to your current account holder and seek an extension of credit line. They may consider you request on the basis of your long standing good credit relations with them. While a new bank may not understand your financial woes and reject your loan application, your existing banker would be a better bet who can help you with funds.
Utilize your fixed deposits
Instead of going in for more loans, you may consider breaking into your fixed deposits and use it in dire financial crisis.
Whatever you do, avoid the following when you need a bad credit loan:
1.DO NOT take informal loans from strangers. They may land you in trouble and eat up your collateral.
2. DO NOT take a loan without any written agreement. Even with friends and family, they help you keep things in perspective for both the parties and ruining your personal relationship.
3.DO NOT default on loan repayment instalments. This make you look bad in every way- bad credit score, high credit risk, a possible defaulter.
At the end of the day, it's all about managing your expenses and matching it to stay within your income limit. As a rule, always pay off your existing loan before taking another one. Do not take a loan unless it is absolutely necessary.