Loans that have been designed especially for individuals with low or no credit score are known as bad credit loans. Many lenders are hesitant to lend to people who have a low credit score as there is a higher risk of them defaulting on the payments. A low credit score is an indication of the low repayment capacity of individuals and hence, these individuals find it challenging to find a lender who will offer them a loan.
A bad credit loan can rescue individuals who have low credit scores or have no credit score. These loans are usually secured loans which means individuals must provide collateral or security such as property, gold, financial securities, etc., to avail a loan.
Your credit score may be low due to any of the below-given reasons:
Bad credit loans should be availed only when necessary, which can be when you are in any one of the below-given situations:
Before you decide to avail a bad credit loan, ensure that you bear the below-given points in mind:
If you have a house or an expensive car or property or any other significant asset, then you can use it as a collateral. This will in turn make you eligible for a secured loan as an option. Secured loans are given at lower rates than the personal loans. Sometimes, when you need a huge amount, this will be the only option that you will be left with. But always meet your repayments as you might lose out on the asset you kept as a collateral.
If you have had difficulty making payments on your loans never keep your home as a collateral. Take different factors into consideration before you turn your Unsecured Loans to secured loan especially if you have had a bad credit history. The rates may seem attractive, but if you miss making payments, you might lose out on the asset you kept as a collateral.Unsecured loans:
Unsecured loans are given to the borrower based on their creditworthiness. You as a borrower will not have to have a collateral. You must have a high credit score to avail an unsecured loan. The loan is not guaranteed by any asset or property. The interest on the loan is fixed and due at the end of a specific time period.
To avail an unsecured loan, maintain a high credit score. You must make all the payments and repayments on time and not default even once.
If you have a low credit score, pledging a collateral can help you get a good deal on loans. Providing a collateral lowers the risk associated with lending to you and hence, you can negotiate with the lenders to offer you lower interest rates. Such loans that are given against collateral/security are known as secured loans.
However, if you do not have any collateral to pledge and are looking for unsecured loans, you may be eligible for a loan if your monthly earnings are on a higher side and you work for a reputable firm. In such cases, banks will charge you higher interest rates and there are also chances of you getting lower loan amounts. For instance, if under normal circumstances, your loan amount eligibility is about 80% to 90%, it will be 65% to 70% because of your poor credit score. There are also chances that you will be offered shorter repayment tenures as banks will look at collecting the loan amount as soon as possible.
Apart from banks, there are two other options that you can try if you have a poor credit score and wish to avail a personal loan -
Yes, there are limited alternatives that you can consider before opting for a bad credit loan. These options are:
Whatever the problems are, stay away from the loan sharks. Consult with your existing lender and work out a deal that will avoid you from defaulting your payments and saving you from a bad credit history. The lender will always assist you and advise you how to go about your current financial status.
If your credit score is 624 and below then it qualifies as a bad credit score. In this case, it will be impossible for you to avail a loan from a lender. If your credit score is between 625 and 699, your credit score is rated as fair. In this case, you may either get a loan or not get a loan at all from the bank since there is still a possibility that you will find it difficult to repay the loan on time. Hence, it is always recommended that you must maintain a credit score of 750 and above in order to avail a loan without any problems.
The list of documents you will have to submit in order to apply for a bad credit loan is given below:
The loan amount that you can avail will differ from lender to lender. The lender based on your credit score, monthly income, expenses, and other factors will decide the amount that they should be lending to you. Generally, the lender will lend you an amount which they feel you will be able to repay on time. The loan amount that generally you can avail is between Rs.50,000 and Rs.5 lakh.
The lender may take up to 30 minutes to process your application. However, it would take up to 24 hours for the loan amount to be disbursed to your bank account.
You can visit the official website of the lender from whom you wish to avail a bad credit loan. You will have to provide the necessary documents and submit the relevant details. You can then choose the loan amount you wish will be suitable for you and the tenure. The lender will then review the documents and details submitted by you, and if they are found to be correct, the loan amount will be disbursed to your bank account within 24 hours.
Generally, lenders who offer bad credit loans would not offer a top-up loan to you. Hence, if you avail a bad credit loan from a lender, it is recommended you repay the loan amount on time. Once you have cleared the loan, you can then apply for a fresh loan as per your requirement.
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