The economy is tough right now, especially for those borrowers who are in the market for a bad credit loan. Having bad credit does not necessarily mean that you will not qualify for a loan, however. There are still lenders who are willing to take a chance with you regardless of your previous delinquent credit past.
Interest Rates for Bad Credit Loans
It is important to be prepared to pay more interest than those borrowers who have good credit. Banks and lending institutions determine your interest rate based on your previous borrowing history, which means that those borrowers who have less than great credit will be required to pay additional interest in order to receive funding.
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It is important that you make sure that your past behavior is reflected accurately, however, before applying. Many borrowers are surprised to find out upon checking their credit reports that there is erroneously reported information on their credit reports that makes their credit seem even worse than it is. For this reason, it is imperative that you pull your credit report and check it for accuracy before applying.
Types of Bad Credit Loans
There are two basic types out there: the secured and the unsecured bad credit loan. The secured version is much easier to obtain than the unsecured because it involves you pledging collateral to the lender before it is approved. The secured version poses less of a risk to your lender, and is therefore cheaper to repay as you will pay less interest. The unsecured one, likewise, is more expensive with a greater amount of interest being charged during repayment. If you pledge collateral to your lender, be aware that the lender can seize and sell the property that you pledge if you fail to honor your agreement.
One way to avoid the necessity of pledging collateral is to apply with a cosigner. A cosigner is someone who has established a good credit history and has adequate income to repay it if you default for any reason. Many borrowers ask a family member, friend, or other person to cosign with them.
Becoming a Responsible Borrower
When you receive your funds, you have the perfect opportunity to rebuild your credit file by making timely monthly payments. Many lenders now offer the convenience of making monthly loan payments online, which makes paying it off easier and more convenient. As a general rule, always try to pay your payment at least 4-5 days before its due; if you mail your payment in, allow at least a week for it to arrive and be credited to your account. By using it to become a good steward of your credit, you can begin rebuilding your credit file and demonstrating responsibility to potential lenders in the future.
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