Borrowers with damaged credit are often under impression that they are unable to get loans from banks due to their low credit scores. While this is true in many cases with traditional banks, it does not mean that obtaining financing with bad credit is impossible. There are a number of banks and other specialized financial institutions today that develop lending programs to serve the needs of poor credit borrowers specifically.
Most people give up on getting a loan after time-wasting attempts to get financing from their local bank. A proper research of lenders geared towards granting loans to bad credit borrowers should be the first step to taking out a loan. Such institutions, offering high-risk loans that other banks refuse to underwrite, are willing to work with your individual case despite your credit rating. Such efforts always come at a higher price sticker, resulting in higher interest rates and more restrictive terms on your loan.
The Borrowing Costs Are Greater For Bad Credit Borrowers
While your bad credit may mean higher interest and fees on your loan, banks and lending institutions are limited by government regulations as to how high they may charge consumers with bad credit. Typically, the borrowing costs are comprised of loan origination fees and interest rates. Loan origination fees, often consisting of application fees, underwriting fees, and loan issuance fees, are charged on a point scale with each point equaling 1% of the loan amount.
Unlike borrowers with good credit, that often see their loan origination fees waived, bad credit borrowers may see their lender charge them anywhere from 1 to 5 points upfront upon loan granting. Interest charges are calculated in percentage points that are charged per annum, commonly referred to as APR. Bad credit borrowers almost always see APR on their loans in double digits. While for shorter-term loans the amount you may overpay in interest may not be as significant, longer-term loans may get quite expensive.
Secured Lending Is a Money-Saver
Secured lending, requiring the presence of collateral, allows minimizing the risks on the loan, resulting in less expenses incurred by both, lender and borrower. Loans backed by collateral, such as a home or a vehicle, typically have less chances of running into default and thus are considered more favorably by lenders. They often extend their savings to borrowers by assigning lower interest rates to secured loans compared to unsecured ones. For borrowers with bad credit such a difference in APR may save hundreds, if not thousands, of dollars in interest. Also, secured lending often allows for larger loan amounts. While it may serve to the benefit of a borrower, it is important to have a repayment plan ready and only borrow the amounts that may be repaid. Loan defaults may further damage your credit ranking and seriously limit your borrowing capabilities in the future.
Loan Approval Is Inevitable
Bad credit loans are way more often approved by specialized lenders that one may expect. Credit history typically plays a secondary role in loan-granting decisions with such institutions. As long as you can persuade your lender that you have the means to repay the loan, your application is typically approved. Some lenders are more restrictive than others; therefore it is vital to do a thorough online research to assure the best deal possible. Finding, applying, and getting approved for a bad credit loan is virtually effortless and convenient with the help of Internet technology today.
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