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.

Loans For People With Bad Credit

What is a Good Credit Score

• What is a Good Credit Score?
• What is The Credit Score Range?
• What is The Credit Score Scale?
• What is The Average Credit Score?

Let’s take a look at the credit score breakdown

Most people know that their credit score plays an important role in their lives. This is the easy part, the more difficult part is actually understanding the credit score breakdown, or what goes into a credit score. There are a few different methods for calculating credit scores but the most commonly used is the FICO method that has been used since the 1980′s. The FICO method was developed by the Fair Isaac Corporation and the three big credit bureaus, TransUnion, Equifax and Experian, all worked together with Fair Isaac to develop this method.

For more information on FICO credit score please read here

FICO, FICO credit score range

A persons credit score can range anywhere between 300 and 850. The average American score is around 690 which is a reasonably good score. Having the average score of 690 will enable you to secure a loan, however it will not get you the best interest rate on your loans.

Let’s take a look at the credit score breakdown.

The first factor is payment history. Payment history makes up 35% of the credit score. This is calculated based on whether you pay your bills on time or not and how many late or missed payments have been forwarded to collection agencies. It also considers if you have had any bankruptcies or tax liens. It can be difficult sometimes to meet financial deadlines if you get a heap of bills all come in at once but just remember that a missed payment is much worse than a late payment regarding your credit score. Missing a mortgage payment will affect your credit score much worse than missing a bill payment or credit card payment so always have your mortgage payment as first priority.

Next there is outstanding debt to consider and this accounts for 30% of your credit score. If you have a number of credit cards and they are all maxed out then this will have a very negative effect on your score, but if you have a number of credits that all have a lot of credit still available then this will work in your favor. Outstanding debt considers the amount of credit outstanding in relation to the amount of credit available to you. It can help your credit score to have a few credit cards that are not being used but simply to give you available credit to increase your score.

Credit Longevity is the next point that is considered when determining your credit score. How long you have established credit counts for 15% of your score. The longer you can maintain good credit and continue to pay your bills on time then the better it is for your credit rating.

Next there are the types of credit to consider. Around 10% of the score is related to the number of different types of credit that you have. If you have multiple types of credit, such as mortgage, car loan and credit card, and all are managed well then this will help with your credit score.

Amount of activity is the last factor to consider. Opening new credits card accounts to leave unused to increase your credit score is good, but not if you open too many new accounts at once. If you have too much activity happening in a short period of time this will negatively affect your score.

When you understand what is involved in the credit score breakdown then you can take steps to improve your score.

What is a Good Credit Score

Loans For People With Bad Credit

The Truth About Debt Consolidation Loans

The Truth About Debt Consolidation Loans

Do you go to your mail box hoping for some good mail, only to find bills? Do you feel like all you ever get in the mail is bills, bills and more bills? You may have even reached the point where you actually look forward to receiving junk mail because it is better than bills! Then every now and then you may get some mail that catches your eye and one such envelope that regularly catches people’s eye is the one with the offer of a debt consolidation loan.

The offer they give sounds so good and could be the answer to your financial worries. If you could get this debt consolidation loan then you would only have one loan and you could pay off all your other creditors. A debt consolidation loan is the mail you’ve been hoping for and could really turn your life around, or can it?

There is a catch to these types of loans. You see if you are in a position that you need a debt consolidation loan then you are considered high risk and as such you will be charged a high interest rate. To get a low interest rate you need to be low risk, but if you were then you wouldn’t need the debt consolidation loan to begin with. So the more money that you owe the higher the interest rate you have. Those people who really need this type of loan are the ones that get charged a high rate.

But of course the lenders offering debt consolidation loans paint a very nice picture and promise you monthly payments that are much lower than your current monthly payments. So it must be better financially if your monthly repayments are lower than what you’re currently paying right? Wrong!

Sure your monthly payments will be lower and that is a huge advantage if you are really struggling to make ends meet, but it is only an advantage for the short term. The reason the monthly payments are lower and yet the loan is being charged at a high interest rate, is that the loan is taken out over a much longer term than the term of your current debts. So although the monthly payment is lower you may be paying it for a number of years longer which means that you actually pay more money long term.

Here is an example of how it works:

Let’s say you have a number of debts spread over several creditors and all up they total $11,000. The average interest rate on these debts is 14% and you have five years left to pay it all off. The total amount you are paying monthly would be around $260. If you decide to consolidate all your debts into one consolidation loan for $11,000 you may get a deal that has your monthly repayments at $190 – that’s $70 less than you are currently paying.

When you look further into the debt consolidation loan offer you see that the interest rate being charged is 17% as opposed to the average rate of 14% that you are paying now. Perhaps that isn’t so bad, it’s only 3% more and you are saving $70 a month – doesn’t really make sense though does it – to have a higher interest rate yet lower repayments. Look further into the loan offer details and you will find that the reason is that the loan is taken out over a period of 10 years. Your original debts, paid at $260 a month, would have been paid off in 5 years.

Let’s take a look at how much you would pay in total over the full term of the loan.

Option #1 – continue with current debts paying $260 a month over 5 years will cost you a total of $15,600

Option #2 – take the consolidation loan paying $190 a month over 10 years will cost you a total of $22,800

So even though you are saving $70 a month now, you are actually paying $7,200 more in interest over the full term for paying off the same debts. If you average that out over 10 years you are actually losing $60 a month rather than saving $70 a month.

The problem is that when people see debt consolidation loan offers they only see the savings that they are going to make each month. They don’t learn all the details and read the fine print to see that they will actually be paying more money long term. The good news is that although a large number of debt consolidation loans are structured this way, not all of them are. You may find a good consolidation loan that will give you a good deal short term and long term. It is important to always read the fine print and learn everything there is to know about a loan before making your decision.