A guide to personal loans for people with bad credit scores
A bad credit score can make it difficult for you to get a loan. Thankfully, some lenders can help you get easy loans even with a bad credit score.
What is a bad credit personal loan?
- Personal loans for bad credit are given to people who do not have a good credit score. A FICO® score that is less than 640 is considered bad.
- You can apply for a bad credit personal loan if your score is 600 at the most. If it dips below that, lenders won’t be as willing to give you a personal loan.
- Bad credit personal loans have high rates of interest. Additionally, the loan period is shorter as compared to loans given to people with good credit scores.
How are bad credit personal loans different from payday loans?
Payday loans are similar to bad credit personal loans as both of these options allow people with bad credit scores to get loans. The following points will help you understand the differences between these two types of loans:
- Payday loans are usually for small amounts of $500 or lesser. However, the amount of bad credit personal loans ranges between $1000 and $50,000.
- Payday loans have high annual percentage rates (APR). When it comes to bad credit personal loans, the APRs might be up to 36%.
- Payday loans are short duration loans. Usually, the payment period is up to your next payday or for four weeks. On the other hand, bad credit personal loans have loan terms of up to 5 years.
- Payday loans come with fewer options whereas personal loans are more flexible and versatile.
- Payday loans are highly risky although they are pretty easy to get. It takes time to obtain a bad credit personal loan, although the risk is substantially lower.
- For payday loans, you are required to repay your loan by the time you get your next salary. If you fail to do so, extra charges will be applied. Bad credit personal loans charge extra fees too, but these fees are not very high.
What are alternative payday loans and how are they different from traditional ones?
- Alternative payday loans require you to pay much higher interest rates than bad credit personal loans. The interest rates can range from 36% to 400%.
- Alternative payday loans have a longer repayment period. Traditional payday loans have a maximum term of four weeks.
- Alternative payday loan providers offer better features than traditional payday loan lenders.
- Alternative payday loans are relatively flexible. You can extend the loan repayment period although interest will be charged, but this extension is not possible with traditional payday loans.
What should one know before applying for a bad credit personal loan?
It is important that you know about the following things before applying for a bad credit personal loan:
- You must check for errors before submitting your application.
- You must plan and pay off your loan on time.
- Ask various lenders for quotes and don’t settle for one if you are unsatisfied. Today, several online personal loan options are available for people with bad credit scores.
- You can try to pay off the loan before the payment period ends.
- You must proceed with caution as there is a risk of running into scammers. If any lender asks for upfront fees, there is a good chance that they are trying to run a scam.
What steps should people with bad credit score follow to get a personal loan?
There are four steps involved in getting personal loans for bad credit:
- Pre-approval: You need to get a pre-approval to understand the terms of the personal loan.
- Choosing your loan terms: What is the loan amount and what is the period of repayment? What are the late payment fees and frequency of payments? You need to make these choices in advance. Make sure to read the fine print carefully.
- Hard inquiry: Before approving a loan, the bank or organization runs a hard inquiry. That impacts your credit score, especially when the frequency of inquiries is high. So, make sure that you don’t apply for too many loans in a short span of time.
- Loan repayment: Ensure that you make your payments on time as this will save you from late fees.
Earlier, there were not many options for people with poor credit scores. However, today, many lenders are willing to help people get loans despite a poor credit score. Some of these lenders are Avant, LendingPoint, and Peerform.