A poor credit rating can haunt you and really affect your prospects when it comes to loans. In some cases, it can even stop you from borrowing money entirely because lenders are hesitant to offer money to borrowers who have a bad credit history. However, that doesn't have to mean that you can't borrow money; it just means you may have some slightly different terms with bad credit loans.
Why Is Bad Credit So Damaging?
In order to understand why a poor credit score is so bad, you first need to know what a credit score is and what it means. Your credit score or rating is a reflection of your financial behavior. Every time you pay your bills on time, that counts in your favour. Defaulted loans, on the flipside, will drag your score down. Your rating is the summation of your positive and negative financial behavior. The actual scale and specific scores will depend on the company, so what, exactly, is "bad credit" will differ depending on who you're working with.
Now, with this in mind, it follows logically that bad credit tells a negative story about your financial responsibility. Maybe some unpaid bills went to collections, maybe you defaulted on loans, or maybe you're really bad about paying bills on time. Whatever the case, it doesn't look good and lenders don't like it, because it indicates that you represent a risk.
But Can You Get A Loan With Bad Credit?
You'll be happy to hear that yes, you can, indeed, benefit from a loan, even if you have a poor credit rating. It's true that some financial institutions will reject you completely and will not offer options for you, but it's also true that there are special lenders that tailor their financial products for borrowers like you. As for the terms of a this type of loan, they can be quite different.
What's The Catch?
Ok, so you can get a loan even if you struggle with a poor credit history, but there are some hurdles. First of all, you need to be aware of the fact that you will most likely receive a smaller amount than other borrowers with a better credit history. Then, you have to keep an eye on the interest rate. That will be significantly higher than normal, in order to make up for the default risk you represent. Finally, the repayment term may be shorter.
What Are Your Options?
1. Loan With Bad Credit
Most obviously, you can opt for a loan for bad credit. These financing options are especially designed for borrowers like you, who have issues with their rating. You will not have problems getting approved for a loan, because you are the target customer.
2. Loan With No Credit Check
Similar to the bad credit loan, a loan with no credit check is even simpler - it doesn't require a credit check at all, so your credit score - good or bad - does not factor into the decision making process. And isn't that great news?
3. Guarantor Loan
Do you have a friend or family member with deep pockets? Then they may consider helping you out by acting as a guarantor (or co-signer) on your loan. If your credit is bad, you can offset that by partnering up with someone with good credit who can take responsibility in case you default.
4. Secured Loan
Perhaps you're unlucky when it comes to credit, but what about assets? If you have collateral, then you may not even need to rely on your credit score. Just put up your house or car as security and your credit won't even matter.
As you can see, there are plenty of ways to get around an unfortunate credit score. All is not lost just because you made some bad moves in the past, and you can absolutely get a loan while you build up credit in the meantime.