Your past has an impact on your future and more so, your financial karma, which decides your creditworthiness in the eyes of lenders. Bad credit scores make it difficult to raise money from traditional financial institutions. Nevertheless, there are other options, like finding private bad credit lenders, who can provide the much-needed vitamin 'M' supplement, for your personal or business requirement. In this article, we explore the loan options that are accessible to individuals with bad credit scores.
The Need for Private Bad Credit Lenders
Getting approval for a personal loan, whether secured or unsecured, can be a hassle if the borrower's credit history is not good. Credit score and credit history play a very important role in case the borrower opts for an unsecured loan. This is because an unsecured loan is not backed by a collateral. The absence of a collateral makes the process of loan recovery entirely dependent on the ability of the borrower to pay off the borrowed sum.
A good credit history would indicate responsible behavior on the part of the debtor and pave the way for accessing future loans. A bad record would make the loan provider dubious of the borrower's intention. One cannot blame the banks and credit unions for judging a person by his past record, since the rating that is readily available to lender indicates the status of his finances.
Credit rating, an indicator of creditworthiness, provides information that can help the lender assess the length of time required by a person to repay a debt. A rating between R1/I1 and R6/I6 would mean that the borrower takes between one and six months to repay a debt. R7/I7, R8/I8 and R9/I9 would refer to the situation of debt consolidation, repossession, and default respectively.
Just as a lender can assess a person's creditworthiness, an individual can view his documented ability to borrow, in the form of credit scores. A score greater than 650 makes him a good candidate for both secured and unsecured loans. The need for approaching a bad credit lender arises when a person's score is between 360 and 620. In fact, if he is in the lower end of the aforementioned range, he may have no option but to approach a private lender. Banks would most likely deny his request for personal loans.
Finding Money Lenders for Bad Credit Personal Loans
Given the age of Internet, private lenders for bad credit personal loans are not difficult to locate. Payday loan providers and car title loan providers are private money lenders who provide loans to people with bad credit. In fact, before the slump in the housing market, many private lenders were providing sub-prime loans using the house as a collateral. Thoroughly research every option, before going ahead.
Payday Loan Providers: Payday loan providers provide loans in exchange for a post-dated check from the borrower, who hopes to repay the loan by the next payday. Payday loan providers lend money for a short period of time, generally for 7 to 15 days, and charge an exorbitant rate of interest on the loan. The high rate of interest is a consequence of the level of risk that has to be borne by the lender. In case the borrower is unable to repay the loan, the lender may submit the post-dated check to the bank and extract his share from the borrower's paycheck.
Car Title Loans: Car title loans are secured by the car's title which allows for sale and subsequent transfer of ownership in case the borrower defaults on the loan. The lender may also expect the borrower to hand over the keys in addition to the car's title. The loan providers charge a very high rate of interest on the amount borrowed, and in the event of default auction off the car and recover the amount of the loan.
Alternatives to Private Money Lenders
Private lenders provide funds without conducting a background check on a person's credit history. However, they charge extremely high rates of interest. In case of payday loans, a person is expected to provide his social security number and his checking account number over the Internet. Unscrupulous lenders may use this information to their advantage. So it is advisable to be extremely careful when opting for loans from private money lenders.
The best alternative to bad credit loans is to seek payday alternative loans from credit unions. These loans are structured similar to payday loans, but the borrower is expected to pay a reasonable rate of interest on the amount borrowed. Bad credit history is also not an issue. Exploring this avenue and working towards debt consolidation can be a worthwhile option for people struggling with mounting debt.