All You Need to Know About Bad Credit Loans

by EDGE

EDGE Media Network Contributor

Tuesday October 22, 2019

Financial crises happen. Be it for emergency purposes or for personal expenses such as health-improvement funding, understand your financial position first.

Rushing to get a loan may worsen your financial stability and may lead to future complications. Learn about what bad credit score is and the types of loans you can get especially when you have a bad credit score.


Bad Credit Score

In today's financing world, credit score is everything. Credit score dictates the type of loan you can land on. From phone contract approvals to installment loans, lenders and banks will judge you based on your credit score.

Credit score, a digitized version of your financial history, is essentially your financial footprint. The loans you have taken out, the bills that you missed, or credit cards that you have applied for affects your credit score. So basically, the better your basic score is, the more reliable you are to the eyes of your creditor or lender.

However, if you are judged to have low credit score, some companies and lenders may see you as a high-risk. Yet, this does not mean you cannot borrow money or take a loan. You can still take a loan that comes with certain conditions. This is called a bad credit loan.


Types of Bad Credit Loans

1. Personal Loan. This type of loan deals with loaning an amount of money for personal use. Some reasons for loaning are for vacations, home renovations, funeral costs, and weddings. Personal loans can also be used as calamity funds or emergency funds.

However, personal bad credit loans have higher interest rates. Because the lender takes a risk of lending money for someone who has a bad credit score, the lender decides to put higher interest rate to earn more than what he/she lent. Some lenders also require expensive collaterals to make sure the borrower pays what he borrowed.

2. Guarantor Loan. Having a bad credit limits your options on what type of loan you can have. Usually, you can only loan a small amount of money. However, some lenders grant you a guarantor loan.

Guarantor loans are an ideal way of borrowing money as they do not rely on your credit score. Only the approval of a guarantor is needed for such a loan. A guarantor, usually someone with a good credit score, will sign a loan with you. The guarantor signs a contract that if you won't be able to pay your loan on time, the guarantor can cover for you. Rest assured, the interest rate of the loan has a fixed interest rate and has now hidden charges.

3. Homeowner Loan. If you loan applications are rejected due to your bad credit score, then homeowner loan is your last resort. This type of loan is a loan for people who own a home and suffering a bad credit score at the same time. To avail the homeowner loan, you can place your home as collateral or security against the
amount loaned.

The amount you can loan is based on the value of your home and your repayment ability. As this type of loan is pushed to people with bad credit score, companies and banks offer a higher interest rate.

4. Installment Loan. A financial term where a person borrows an amount of money and repaid through installments. Installment is a series of fixed payments which includes the interest. This type of loan usually has a monthly installment payment. However, it depends on the agreement of the lender and the borrower. Both can agree on a weekly or a bi-weekly installment.

5. Logbook Loan. Logbook loans are typically loans that require your asset such as your car as collateral. This type of loan is less risky for lenders. This means that if you cannot meet your repayment, the lenders can sell your car to make up for what they lent.

6. Payday Loan. This type of loan is typically done to borrow a small amount of money, in comparison with guarantor loans. It is called a payday loan because this loan holds you for days between paydays. The money usually goes to buying physiological needs such as food, shelter, clothing, and warmth.

It also comes with a hefty interest rate, like with other bad credit loans. This may turn your salary on your payday into a pay for the loan that you have taken. However, if paid quickly or before the payment deadline, this type of loan won't do many issues. Complications may arise if not handled correctly. The longer they are left unpaid, the more the interest will go higher.


Takeaway

Borrowing money is a huge risk to take. Thus, weigh certain advantages and disadvantages first. Carefully plan out how you can pay the loan without sacrificing much of your finances.

The better you understand your financial position, the better you can pick a loan suitable for you.

Comments on Facebook