Bad Credit Loans - Finding a Non-Traditional Bank Loan


People with poor credit tend to think that because of their financial situation, they will never be able to get a loan from a bank. The truth is even people with spotty credit histories can obtain a loan from a financial institution. In fact, there are many lenders in the marketplace that do give loans to those with bad credit.

Instead of wasting time and energy trying to persuade a bank to give you a loan with a poor credit history, investigate certain financial institutions that actually provide bad credit loans as one of their services. These banks offer these loans despite the high risk that would discourage other banks from lending to you. The drawback however, is that you face significantly higher interest rates than those who have stellar credit borrowing from a traditional bank.

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About Your Bad Credit Loan Interest Rate

Despite the fact that those with poor credit usually face higher interest rates and associated fees on bad credit loans, there is still a ceiling on how much a lender of any kind can charge you by using a points system. A point in the financial world is defined as a fee charged to the principal or initial loan amount, usually equal to 1% of the principal. Borrowers with good credit typically have their points waived, thus making their loans almost interest free or with low interest. Those with less than perfect credit are usually charged four to five points on a loan. Check with your local consumer protection office to find out how many points you can be charged on a loan in your situation, as this varies from state to state.

Secured Loans May Be Best Option

You do have the option of applying for a secured loan to keep your interest rates as low as possible. Bear in mind that this will require you to put up something of value as collateral, usually either the title to your vehicle or deed to your home if you are the owner. This is to guarantee the repayment of the loan and make the lender feel more at ease about granting you the loan. In this situation, the lender is so confident that you will repay the loan, because of the value of the collateral that they are willing to lower the interest rate for you. However, you must remember to borrow only what you know you can realistically repay and make your payments on time. Defaulting on any loan can damage your credit more and will definitely be a hindrance in your financial life later down the road.

Raising Your Credit Score with This Loan Type

Despite having poor credit and facing a high interest rate, you do have a good chance of being approved for a bad credit loan. These financial institutions have worked with similar customers and rarely turn down an application. Seeking out these types of loans is as close as your computer as many of these types of lenders exist online to keep their overhead costs low.


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