Loans For People With Bad Credit
personsl Loans for People with Bad Credit History
Realistic Loan Options for People with Bad Credit
Daniel Boortins, a well-respected historian once said, “it is hardly an exaggeration to say that the American standard of living was bought on installment plan”. What happens to that standard of living when a consumer’s credit rating is so bad that lender’s refuse to give any more credit? Simple, the consumer uses another financial tool known as a loan. But first the consumer must be familiar with loans for people with bad credit, because those will be the only type of loans that the consumer will qualify for.
A loan is an agreement that can be entered into by natural or juridical entities, whereby money, property or any other type of asset is given at a predetermined or determinable future date by a lender to a borrower. The latter agrees to return the thing borrowed or its equivalent usually along with interest at some future time and in most cases on installment. For example Mr. C lends five hundred dollars ($500.00) to Mr. B. with the understanding that the latter will pay the former the entire amount with ten percent (10%) interest, in five (5) monthly and equal installments starting January 1, 2012. Therefore Mr. B has to pay Mr. C. one hundred ten dollars ($110) on the first of each month for five (5) months, starting January 1, 2012.
Consumer Credit is an indicator used by creditors to determine how much of a risk a consumer is in defaulting on a loan. A poor credit rating indicates a high risk, and lead to higher interest rates, or the denial of a loan application. Therefore, loans for people with bad credit are limited by the calculated amount of risk a lender or creditor might be willing to accept.
Borrowers have to accept the reality that the provisos contained on loans for people with bad credit will not be as favorable to them as opposed to loan options for people with excellent or good credit. For example, Mr. A and Mr. B each take out a three hundred thousand dollar ($300,000.00) thirty (30) year fixed rate loan. Mr. A with excellent credit, which means a credit score of around seven hundred sixty (760) to eight hundred fifty (850) can expect to pay around five point seven percent (5.7%) interest, amounting to more than seventeen thousand dollars ($17,000.00) in interest payment. Mr. B who is a consumer with damaged credit, around five hundred (500) to five hundred seventy nine (579) can expect to pay nine point five percent (9.5%) in interest, amounting to around twenty eight thousand dollars ($28,000.00) in interest payment.
There are only a few types of loans for people with bad credit. First would be repairing their credit rating before taking out a loan. This option is only available consumers whose credit rating is within reach of the required credit rating and who still have enough time. For example, Mr. A has a five hundred seventy five (575) credit score and he applies for a car loan from Bank of B. The latter is requiring a five hundred eighty (580) credit score at the very least. Since the difference is only five (5) points and Mr. A has several disputes on his credit report, plus several bills due which he can pay on time, then it is worthwhile for Mr. A to repair his credit rating first. A delay of a few months may be better than a loan denial since this might also be taken into consideration by other lenders in the future.
Another one of the loans for people with bad credit would be to take out a loan with a cosigner who has excellent credit. A cosigner is a person who signs the contract of loan together with the principal borrower and is considered a co borrower on the loan. The excellent credit rating of the cosigner may be enough to compensate for the poor credit rating of the principal borrower. This option is considered by some as one of the better loans for people with bad credit but is only realistic if the principal borrower can find a willing and sufficient cosigner for a loan.
A third loan option for people with bad credit is to consolidate and negotiate all debts and take out a single loan to pay off all overdue bills. While most people will question the wisdom of taking out another loan and incurring another debt to pay off other debts, this is a viable option if the debt consolidation is done properly.
First, the consumer has to research lenders who are reliable and whose loan terms fit the earning capacity of the consumer. Reliability is the key because some lenders will offer loan terms that are unrealistic and may even force a consumer to pay off only the interest while leaving out the principal amount. Reliability can be done thru research and cross referencing lenders with government and non government agencies that monitor lending institutions like the fraud department of a county or the Better Business Bureau (BBB). Second, the consumer must make a realistic calculation of their monthly income and expenses including emergency expenses for at least six months. Whatever amount is left is the monthly loan amortization than the consumer can afford. This will be the only time a consumer researches for reliable lenders. Third, negotiate for a reduction of the principal amount and the condoning of interest and penalties. Oftentimes all it takes to reduce a debt is to write a simple hardship letter or to plead with the debt evaluator.
In closing, there are still a few available loans for people with bad credit and these loan options can actually work, but the consumer must make sure to be religious in following a set income and expense, then properly researching the loan terms then asking for consideration from creditors. This is because being smart and choosing the right partner can spell the difference between being debt free or filing for bankruptcy.