Bad credit can be disastrous when one is trying to get a loan, credit card, or mortgage. There are many causes for bad credit, from not honoring repayment plans to defaulting on one’s credit card. Thankfully, bad credit can be improved, though it does take time.
On average, it will take a person five years to improve their credit if it is very bad. With that said, there are options available to people with bad credit if they do want to take out a loan, though the interest rates are usually quite high.
This article will further explore this subject, explaining all options available to those with bad credit:
What Is Credit?
Credit is a financial term that refers to the ability to borrow money and access goods, with an understanding that you will pay later on. A credit rating is a score that determines your ability to borrow, which lenders check when you make a credit application. If you have a history of not making payments on time, poor borrowing, and bad financial decisions, then lenders will deem your credit to be bad. Bad credit is a barrier to borrowing, but you do have options.
It is possible for people with bad credit to get personal loans, though the options available are few and far between. If you want to apply for a personal loan with bad credit, then you will need to conduct an extensive search online. Make sure that you take time to research each lender, their borrowing criteria, and the interest rates that they charge per month. Each time you apply for a loan, a search is marked on your credit file. Searches can bring down your score considerably. Only apply for what you are confident you want, to save your score from being brought down too much.
Secured loans are another type of loan available to people with bad credit. If you want a loan with fast approval, then you should go back and check out personal loans, however. Taking out secured loans can be a very difficult, long, and laborious process. This is because the loan is secured with one’s property or collateral as it is called professionally. If you default on a secured loan, then the item you put up as collateral will be seized by the lender. Sometimes lenders will demand you put your house up as collateral, which is very risky.
Guarantor loans are another type of secured loan and are even more complex because they require a guarantor, which is a person who agrees to repay the loan if you cannot maintain payments. It can be difficult to secure a guarantor loan because most people are not up for the idea of repaying somebody else’s loan. You are best asking close friends, relatives, or your partner to act as a guarantor on your loan. Guarantor loans often charge very high-interest rates also. Most financial experts recommend against them.
Borrowing from Friends
Your last option is to borrow from friends or family. Unfortunately, borrowing from friends and family can put a heavy strain on your relationship. The reason for this is that relatives or loved ones feel like they have no choice but to help you when you ask. This can lead to them lending you money, despite not wanting to or not being in a good financial position to do so. If you are going to borrow from your loved ones, then make sure that you are confident that they can afford to help you first, then make sure that you pay them back according to the plan that you arrange with them.
Improving Bad Credit
If you have been denied a personal loan, don’t have anything to put up as security, can’t find a guarantor, and your loved ones won’t help you, then your only option is to improve your credit, and apply for a loan when it improves. Here are two ways that you can improve your credit:
- Repay your credit agreements by direct debit. Often, the main reason that people default on payments is that they forget to repay them. If you have a lot of bills outgoing, it’s only natural that from time to time you will forget to repay one. A direct debit will prevent this from ever happening.
- Credit builder cards can help you to build your credit. Over time, making payments to a credit builder company will help your credit to skyrocket.
If you are in desperate need of money, then a loan may be your only option. If you aren’t fortunate enough to have good credit, then you will have to find a lender that gives out loans to people with bad credit. Finding a lender that does this can be difficult.
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