According to FICO.com, 11.5% of American have a credit score that is below 550. 60% of these people will take out another loan and default on that loan. It’s easy to see why fewer lenders are willing to loan to individuals with a credit score of 550 and below. It’s risky.
That being said, people with bad credit still have a variety of loan options that can help get through life’s hurdles. This article will detail the 3 most common loan options for a lower credit score, and the golden rules of utilizing them.
Option 1: Online Installment Loans
Installment loans vary in length, terms, and amounts. They’re a great resource for unplanned emergencies such as an emergency roof repair. These loans have a structured payment schedule that typically falls around the borrower’s payday.
There are dozens of installment loans online for bad credit. You will have to do your research and choose the one that is right for you. Be smart and compare terms, fees, and payment schedules before committing to an installment loan.
Option 2: Auto Loans
Auto loans are one of the most common types of loans available to individuals with bad credit. Loan terms commonly last three to five years with interest rates based on credit/background checks and terms from your lender.
Those with bad credit need to understand how much money they will pay in interest before committing to an auto loan. Though more readily available to lower credit scores, auto loans are usually are a longer term commitment to repayment.
Option 3: Payday Loans
Much like a cash advance on a credit card, payday loans should only be used for small emergency amounts that you are one hundred percent sure you can pay off. As these loans are due on the day of your next paycheck, it’s imperative that you know paying the full of the loan will not add to your debt in other areas.
Understand that the terms are risky if you cannot pay back this short-term loan. These loans are readily available online and in your city. Like the others, make sure you’re comparing terms and can handle the payments when they’re due.
The Golden Rules of Borrowing
Whether you have good or bad credit, there are 3 golden rules of borrowing that should follow you into any loan decision.
- Have a Realistic Understanding of What You Can and Can’t Pay Off
Before choosing to take out a loan, take a look at your finances. Not a ten-second look where you assume you could handle a $300 repayment term, a longer look at your spending habits and where you’ll ‘feel’ the $300 payment to the loan company. If you’re unsure of how to do this, seek financial advice. The vast majority of American cities have a way for the consumer to get free or low-cost financial advice from city resources like the library.
- Borrow Smart to Improve Your Credit
Just because you have bad credit now, doesn’t mean you have to stay that way. In fact, the more you practice responsible financial habits, the better position you’ll be in.
- Beware of Predatory Lenders
Unfortunately, there are a lot of companies out there that want borrowers to default on their loans. These lenders know that they’re able to collect larger sums of money from accounts that become delinquent. Most of these lenders have a history of preying on borrowers. This is why researching the companies you’re interested in taking a loan from is vital to the process.
Proceed with Caution
Borrowing can be overwhelming. In a sea of loan ads and offers, it’s easy for consumers to feel like they’re left with little options. To secure a loan that betters your financial future despite a bad credit score, block out the noise and get down to the terms.
Credible loan companies are more than ready to answer your questions. In fact, speaking with companies can help you get a good idea of who not to work with. In other words, don’t settle for the first loan you see.