Many people think that because they have bad credit they will be unable to get a loan. What they don't know is that getting a loan with bad credit is really not as hard as people assume it will be, it's just a case of finding the right lender! Many lenders in the market specialize in bad credit loans and are more than happy to help people with a less than wonderful credit record. Of course these lenders have requirements that must be met but it's really not as hard to get this type of loan as you might think...
So what is the difference between a bad credit loan and a standard personal loan?
A bad credit loan has a different structure compared to a standard personal loan. The lender may want you to provide them with assets of some sort to secure their investment in you. This is normally achieved by letting them place a lien on your property, vehicle, personal property, or something of value that you own. Based on individual circumstances lenders may allow you to use other forms of security, but what they allow varies from lender to lender. Since you have bad credit, this simply allows them to protect their interests.
When trying to get a loan with a poor credit history you will find that lenders willing to help you will charge a higher rate of interest, this Is purely due to the fact that the risk of offering you a loan is considered higher than granting the same loan to a person with good credit rating. Try not to let this put you off - a bad credit loan can help you repair the previous damage to your credit history, even if you do have to pay more interest, because the effect of paying off the loan will have a very positive effect in the long run.
The advantages of a bad credit loan
Whilst a loan for someone with less than stellar credit may require higher payments and more interest, there are benefits to getting one. Using the capital to pay down your current loans isn't the only way a bad credit loan can help you, providing you make your repayments on time your credit rating will get better, providing you didn't pull a Bernie Madoff or anything then it's not uncommon to find that you are again able to qualify for traditional credit once your bad credit loan has been paid back!
How to apply for a bad credit loan
If you apply for this type of loan, it's vital that you show the lender that you have kicked the habit of missing payments or defaulting on credit. On top of the standard paperwork, it's helpful to give your lender references from other lenders to prove that you have the means to repay your loan and offer them a good investment. These don't necessarily have to be from other finance firms, you can use references from your phone company, utility suppliers or anyone else who has provided you a service that didn't need paying for upfront. If you live in rented accommodation a reference from your letting company or the property owner is always a good idea.
You'll also need to show the lender that you have the income required to repay the loan. As a rule of thumb this would mean your paycheck receipts, bank statements and if you are self employed your various tax documents. When applying for a bad credit loan, it's a good idea to itemize all your monthly outgoings and compare them to your income for the lender, by doing this the lender will be more confident that you can repay the loan and therefore will be more likely to give it to you.
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