Financing with Bad Credit
There are loans that have been designed especially for those who do not posses an adequate credit score to obtain a loan otherwise. Typically these loans are called secured loans and require a certain amount of collateral to be held in lieu of payment. Unfortunately, if a person does not have good credit it can be very challenging for them to obtain unsecured loans. With that said, let’s examine some of the ways a person with poor credit may obtain a loan, whether it be a bad credit personal loan or a bad credit business loan.
Bad Credit
Essentially there is a minimum FICO score that is required in order for a person to fall into the “good credit” zone. The minimum score will vary depending on which financial institution you are applying for a loan with but a general rule of thumb is 700 or higher in order to obtain a reasonable amount of money in the form of a loan or line of credit. If there are issues on your credit score you may want to try and repair them prior to applying for a loan. This could result in getting a lower interest rate in addition to a much faster approval.
Secured Bank Loans
Most banks do offer loans for people with poor credit provided they have some sort of collateral to put up ensuring that the loan will be repaid. In most cases the deed to a home or other piece of real property, a boat or vehicle title, or even an expensive family heirloom can be used. In most cases the bank will require an appraisal of whatever item a person is planning to use as collateral to be sure it has enough value to cover the amount of the requested loan. Because these loans are secured by something of value, there is little risk to the bank and for that reason the bank may be a bit more relaxed in terms of approval requirements.
Unsecured Loans
In order for a person who has bad credit to obtain an unsecured loan there will be certain hoops to jump through. The best way to obtain an unsecured loan if your credit score is low is to get a co-signer to sign on the loan with you. In some cases, especially if the loan is going to be used for education it is easy to get a parent on board. In other cases, where there is no parent with good credit available, a friend or other family member may agree to co-sign. The difference between secured and unsecured loans is the interest rate and the time allowed for repayment. Usually an unsecured loan carries a higher interest rate than a secured loan, this is mainly die to the risk involved. In addition a secured loan will often be given a longer period of time for repayment.
With today’s economy it is not rare for a person t find themselves in a situation that requires a little helping hand where money is concerned. Fortunately, there are loans for just about everyone. It is very important to consider all options before committing to a high interest loan which may be difficult to replay. Defaulting on any sort of a loan will further lower a credit score and cause additional financial troubles for someone who is already struggling. For this reason it is vital that a person consider carefully before taking out a loan, whether or not it is absolutely necessary.