In today’s economic climate, more and more people need loans for automobiles, home mortgages and a host of other reasons. The idea that it’s impossible to get a loan with bad credit is a common misconception, but that’s exactly what it is: a misconception. It’s possible to get a mortgage loan with bad credit, get a car loan with bad credit and even get a personal loan with bad credit. Keep these five tips in mind when shopping for a bad credit loan:
1. Explain your circumstances.
Some lenders are willing to consider circumstances surrounding your bad credit. If your bad credit is caused by a significant personal event, such as a divorce or an injury, but your credit is otherwise good, a lender may be more willing to work with you. Be sincere, and a good explanation may get you the bad credit loan that you need.
2. Be realistic about what you can afford.
Don’t borrow more than you can afford to repay. A bad credit loan may cost you more than a conventional loan, so take this into consideration when you borrow. You may have to borrow less to ensure you can make your payments and then shop for a conventional loan down the road when your credit improves.
3. Do your research.
Just like conventional loans, bad credit loans come with a range of interest rates, pre-payment penalties and clauses and loan terms. Shop around, and make sure you only borrow from a reputable lender. Check the Better Business Bureau and do a Web search for your lender to ensure that you aren’t dealing with a predatory lender.
4. Prepare for high rates and compromise.
Most lenders charge higher interest rates for bad credit loans to offset the higher risk. Be prepared for the high rates. If you contact a company offering a 4.5% mortgage interest rate, don’t expect to receive that rate with bad credit. You may have to shop for a smaller loan if you can’t afford to repay a bad credit loan at a high interest rate.
5. Beware predatory lenders.
Predatory lenders are a huge risk in the sub-prime loan industry. It’s normal to pay higher interest rates for bad credit loans, but some lenders charge exorbitant rates or require unreasonable provisions to collect the debt if you default on your bad credit loan. Look out for early payment penalties, a default interest rate for late payments, or sneaky collateral clauses that your lender doesn’t tell you about. Never sign anything you don’t understand, and ALWAYS read the fine print!
With these powerful tips at your disposal there should be no reason why you don’t get that important bad credit loan, best of luck!