If a borrower has a bad credit score, one that’s below 630, then he shouldn’t be worried about the fact that he would not get a personal loan because some of the online lenders cater specifically to people whose credit history isn’t impeccable. These companies generally take into account the credit scores and history when they have to decide whether they should loan the borrower money, but they also have more flexible requirements than the banks do.
While personal loans from the reputable online lenders are considered as good options for many borrowers, there are many online lenders which recommend the borrower first visit for the local credit union when they are shopping for loans. Most of the credit unions offer flexible loan terms and also lower interest rates than the online lenders, especially for the people with bad credit. The maximum annual percentage rate at a credit union is considered to be 18%.
If one can’t get a loan through the local credit union, then the borrower should compare offers from the multiple lenders before signing any of the loan agreement. Rates for bad credit borrowers can, however, vary dramatically depending on the lender’s underwriting requirements. Pre-qualification generally does not affect the credit score.
Generally the Borrowers with bad or fair credit scores — because of the missed payments or high balances on the credit cards — would pay more for any personal loan than those with good or excellent scores. One may also be required have to consider options like securing the loan with a collateral or having a co-signer with good credit. But even the highest rate from the online lenders, typically which is 36% APR, is lower than what the borrower would pay for a payday loan, where rates are typically 400% APR.
Also, some of the options which are available to the borrower when they do not get a personal loan with bad credit are:
- Debt Consolidation Loans
If a borrower is having trouble in keeping up with multiple payments for debts like medical bills or balances on high-interest credit cards, then he should consider debt consolidation loans. This type of personal loan rolls the debts into a single loan ideally with a lower interest rate saving him money in the long run.
- Secured Personal loans
If the credit score prevents the borrower from qualifying for an unsecured loan, some lenders may offer the borrower a secured loan. Cars and certificate of deposits are the most common types of collateral the borrower uses to secure a personal loan.
In fact, there, however, are some of the online lenders that specialize in bad credit loans to help the consumers consolidate debt. By consolidating credit card debt with a personal loan, one would likely see an increase in the credit score.