Four Loan Options That Are Perfect For Bad Credit

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Before, a bad credit rating would often mean the end of the world for a person financially. Fortunately, the situation has gotten better in time and nowadays, there are a lot of options and solutions for people who have poor credit rating. You don’t need to stop living your life to the fullest and enjoy your financial freedom simply because of a past hiccup.

When it comes to loans, most major banks and financial institutions are still strict and rigid with their requirements, so getting a loan there is virtually impossible if you have bad credit. However, never fear – there are a lot of loan options that are bad credit-friendly.

Borrow from friends or family

I know most of you won’t be expecting this advice, since this is probably an obvious fact. However, it is always a good idea to ask for help from the people closest to you. Friends or relatives won’t subject you to a credit check and won’t ask for collateral (though some wise ones may ask for your phone or jewelry).

However, things can get really messy with informal borrowing. Terms might not be clear and you bridges might get burned simply because of unpaid debts. Even if you are just borrowing from friends or family, it’s always a good idea to put the terms down in writing.

Peer-to-Peer

Another great option is to find peer-to-peer lending services on the web. Since individuals don’t have to worry about high overhead costs like banks do, the overall interest rate and lending terms are lower and more lenient. Also, individuals tends to be less business-minded compared to lending institutions and may be more sympathetic with your situation.

Collateral and Guarantees

Usually, what a person uses as a guarantee to get a loan is their ability to pay. This ability to pay is judged based on their credit rating. So if you have poor credit rating, lenders see you as someone who might not be able to pay. So you need to put something else as a guarantee in lieu of your credit rating. You can use your home, paycheck and automobile as collateral for loans.

You can also use another person as security for the loan. These are called co-signees or guarantors. The guarantor also signs the loan agreement, and they assume financial responsibility over the loan in case you default.

Credit Unions

Credit Unions and charitable organizations are also great places to secure loans with bad credit. They are less business-minded compared to banks and more service-minded. They are more inclined to help you and see you as a human being, especially if you talk to them personally.

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Common Reasons Why People Take Out a Loan

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Why do people take out loans? Well, for one simple reason – because they need money. The more important question is; what do they need the money for? It’s important to have a purpose when it comes to taking out loans, because there’s a loan type for each purpose. Yes, there are loans that do well for any purpose, but there are specific loans that might be suitable for your needs and circumstances.

We’ve gathered information from lending institutions as well as personal interviews regarding the most common reasons for taking out a loan. Here we give you a rundown of the most common reasons, as well as the type of loan that suits each purpose.

  • Purchasing a home – If you currently own a home and want to move to a new home, you can take out a home equity loan against your current home to pay for your new home. Mortgages are also a viable option.

  • Buying a car – Auto loans are popular nowadays, and many car dealers are even offering auto loans as part of their financing services. It’s not a bad option to take, especially if you don’t have money to buy the car outright. Just make sure you take a look at the original purchase price, and then calculate the total amount of the auto loan. The disparity between the two numbers shouldn’t be too great, or else you’re at a serious disadvantage.

  • Pursuing your education – Education is important, which is why the UK government has several student loan options available. If you can’t get one from the government, you can secure a student loan from a private institution.

  • Setting up a business – Starting your own business can be very expensive. Get a head start on your capital using small business loans. If your local government is supportive towards start-up businesses and entrepreneurs, you can ask around for a government-backed business loan.

  • Paying off other debts – It may seem counterproductive to take out a loan when you already have a lot of outstanding debt. However, if you risk losing a lot because of your debt, you can avail of debt consolidation programs to smooth things over. This does not mean you won’t have any debt anymore. Think of it this way: using a loan, you pay off all your other debts and then all you have to worry about is paying that loan off in the near future. It’s not much, but it gives you time, especially if you’re just recovering from a financial crisis.

  • Quick cash for emergency expenses – If you need to purchase medicine for an unexpected sickness, or call a plumber after your pipes burst, you might find yourself in need of quick cash. For those emergency funds, the best sources are logbook loans, payday loans and peer-to-peer lending.

Loans are definitely a great way to solve any urgent financial problem, but it’s nice to know that there are specific types of loans that cater to specific purposes. Remember though, borrowing is a short-term solution, so use your loan wisely. Loans should do more than just solve an immediate problem; they should help make your financial future a lot more stable.

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