(The following is a guest post)
Over the past few years, many people have made mistakes with their finances that may have caused negative information to be added to their credit report or their credit score to drop. People that have missed payments or defaulted on a loan will see the most significant effects in their credit score, but individuals that use a large percentage of their available credit and those that have numerous credit inquiries on their credit report may find themselves with a bad credit score as well. Although getting a loan with a bad credit score is difficult, it is not impossible as there are quite a few companies offering bad credit loans to the people that need them.
Factors That Affect Your Chances Of Obtaining The Loan
Not all bad credit loans are created equal and you may be able to get a better deal by shopping around for the best loans available for your situation. Potential lenders will focus on a few key aspects of your credit history to determine whether they should extend a loan to you and what the interest rate for that loan will be. Here are some of the features that they examine:
- Your Credit Score – if your credit score is lower than 580, you may have a difficult time being approved for a bank loan and will have to pay a high interest rate for access to credit.
- Multiple Credit Inquiries – if there are a large number of recent credit inquiries on your credit report, it indicates that you have been shopping for credit and possibly turned down by multiple creditors already.
- Negative Credit Information – a recent bankruptcy or loan default listed on your credit history will make it much harder for you to be approved for bad credit loans.
If you have a low credit score and negative information on your credit report, your options may be limited but you may still be able to get a bad credit loan. It is important to remember that the interest rate that you will be charged for the loan will depend on how low your credit score actually is and a high interest rate will mean a higher monthly payment on a lesser amount of money. Take careful stock of your financial situation before applying for the loan to ensure that you will be able to pay back the loan in a timely fashion if you are approved for the loan.
Be Honest With The Loan Officer
If the fact that you have bad credit has already been determined before you decide to apply for bad credit loans, you may find better reception for your application if you discuss your situation with the loan officer up front. Be honest about your financial situation and provide a reasonable plan for repayment to increase your chances of being approved for the loan you desire. If the loan officer knows in advance that you are aware of your difficult credit situation, they may be able to help you secure a bank loan that can get your finances back on track.
You will need to provide specific documentation to the loan officer during your consultation for a bad credit loan. These items include:
- Identifying documentation such as your drivers license and social security card,
- Documentation of assets and proof of ownership documents,
- Pay receipts or tax documentation indicating amounts of primary and secondary income,
- Any documentation that explains previous negative credit report entries.
Using The Loan To Repair Your Credit
It is important to make all payments on time and in the correct amounts for a bad credit loan so that you can repair your credit and qualify for better loan terms in the future. Choose a loan amount that allows you to borrow only what you need, as borrowing more than strictly necessary can result in debt troubles in the future. Examine the terms and conditions of the loan before signing any paperwork to prevent unpleasant surprises and stay on top of your payments to get the loan paid off in a timely manner. You may find at the end of the repayment period that your credit score has risen enough for you to qualify for much better loan terms for your next loan.