Finding the best possible loan terms can take a bit of searching, but when it comes to getting personal loans for bad credit purposes, the challenge can be a lot more testing. Why? Well, lenders are a bit hesitant to make such loans unless they are protected by high interest rates and low principal.
But that’s not to say that borrowers with bad credit are without options. There are lenders that offer competitive terms and are approved with low credit scores. However, it usually means avoiding traditional lenders and turning to alternative providers or online lenders.
But what are the options open to a borrower with bad credit looking for good terms on a personal loan? Well, there are three popular font options. That is, established traditional lenders, online lenders, and private loan companies.
A traditional bank loan
Some banks are willing to take the risk of lending to an applicant with a bad credit history. The reason usually comes down to the purpose of the funds. Approving a personal loan for bad credit management purposes is considered less risky than a general loan. The borrower clearly wants to improve her situation.
The problem is that banks charge much higher interest rates on these loans, often 2-3% more than the normal rate, depending on the amount requested and the bank’s lending policies. And, to have any chance of approval with low credit scores, the applicant must be an account holder and may be required to provide collateral.
There are some advantages to this deal, despite the high interest. First, approval of a personal loan is more likely if the relationship with your bank is good. Second, they also know your credit history. Finally, they are more likely to change policies, such as extending the repayment period, say from 5 years to 10 years, to make payments more affordable.
A private loan company
Loan companies operate independently of established banks and have less stringent credit policies to attract business. They specialize in lending to bad credit borrowers and as such, the terms of their personal loan for bad credit borrowers are quite good.
However, repayments are affordable mainly because the repayment term is longer than usual, sometimes stretching as long as 30 years. This reduces the portion of principal paid each month, so approval with low credit scores is not an issue.
But this also means that the interest paid over the life of the loan is extremely high. The question is where the full cost of the personal loan is worth, and usually the answer is yes. Private loan companies are also very open to restructuring existing loans, so there is always an option available.
online lenders
There is no doubt that online lenders are fast becoming the most popular alternative to traditional banks as a source of loans. And when it comes to personal loans for bad credit borrowers, the terms on offer are very hard to beat.
For starters, interest rates are typically 1% lower than normal, although this may not be the case when your credit score is very low. The lower rate is mainly due to the lower overhead, so lenders can afford to be more generous. Therefore, you are more likely to get approved with low credit scores.
However, there are also risks involved. It is essential that online lenders are reviewed before committing to a personal loan deal. Check the Better Business Bureau website or the Verify1st site to verify their reputation.