Bad Credit Loans [2020]

Online Loans for People with Bad Credit

Life is full of unpredictable, difficult situations that can sometimes get downright impossible. And this can happen to the best of us – no one is immune. Even those that are being economically savvy are having good personal financial management habits and are planning responsibly for the future.

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It might be either because you are a fresh college graduate and job pickings are slim, or you had major home improvement expenses. Worse yet, it might be a medical condition that has kept you out of the workforce and forced you to rely on credit card cash advances often. In short, the causes are endless that can get you into a bind, land you into debt, and cause you to end up with a poor credit score.

Yet, you might still be in dire need of money right now, either because of an unforeseen expense (car repairs, school or medical expenses), or to cover your immediate basic needs and see you and your family through this rough patch. Ideally, you would have your emergency fund to dip into, but this is not the case for well over half of Americans.

Statistics are quite disheartening in this respect, which shows that 60 percent of Americans have less than $500 in savings. In contrast, more than half of Americans have “bad credit” – corresponding to a FICO score of 620 or below.

All this to say, if you do find yourself held back by poor credit, that is no reason to despair. Many reputable lenders are willing to take a chance on people with bad credit. They can provide you with several loan solutions with flexible terms and low monthly payments, that would fit best your personal situation.

The important thing is to do some research, to know your options and find the best deal for you. In this guide, we will present you with detailed information about Bad Credit Loans and describe the many types that are out there. We will also give you tips for choosing the best one as well as guide on how to improve your credit score so that you can borrow with better loan term in the future.

What is a Bad Credit Loan?

Personal loans for people with no or bad creditA Bad Credit Loan is a form of a personal loan made available to borrowers who have poor or no credit. Loans for bad credit come in many different types as do the financial institutions that offer them – banks, credit unions, and online lenders, among others.

Personal loans may be unsecured, which means that they do not require collateral (a consent to be put up to “secure” the loan). Such loans typically include personal installment loans, guaranteed loans for poor credit used to fund needed expenses. They can also be used to consolidate debts (taking out a new loan in which multiple debts are combined into a single amount, usually with more favorable payoff terms). The great advantage of an unsecured personal loan is that it can help improve the borrower’s credit score. The loan term ranges from 36 months to 60 months.

One standard feature of any bad credit loan is that these will be expensive because of high-interest rates. Lenders charge higher interest rates to borrowers with bad credit because these borrowers already established for themselves a history of paying their debts late or completely defaulting on them. To default is to fail to meet a financial obligation, such as a debt. So, from a lender’s perspective, you are a high-risk client.

What is Credit Score and How is it Calculated?

how to calculate your credit score when applying for bad credit loansDefining “good” and “bad” credit is simply putting together a description of a person’s credit score based on his debt repayment history. Among the things that can potentially contribute to a lower credit score and bad credit are late fees, total inability to repay resulting in bankruptcy, or if there was simply some irresponsible buying involved, maxing out one’s credit card.

While there is no particular point carved in stone at which bad credit occurs, generally, a borrower’s credit is considered poor once the scoring falls between 300 and 630. There are several ranging criteria, but the most common type is the FICO score.

“Good credit” is considered so if you have a credit score of 680, while anything above 720 is an perfect credit. This grouping is not by any means what you would call official, it is still useful to guide yourself according to its five basic tiers:

Credit Score Credit Rating
800-850 Excellent
740-799 Very Good
670-739 Good
580-669 Fair / Subprime
300-579 Poor / Bad Credit

All this information is gathered by credit bureaus and used to generate a borrower’s credit report. Based on it, the individual’s credit score is calculated and ultimately serves as a guide for attributing the label of “good” or “bad” credit history.

Credit reports are available through only three nationwide companies, whose primary business is to draw up the credit history of borrowers: Equifax, Experian, and TransUnion. They are required by law to provide a free credit report to anyone once in 12 months. An individual has the choice to request a report from one or all three of the companies. Check your credit report at least once in 3-6 months.

What Loan Options are Available for People with Bad Credit?

There are two types of bad credit loans: secured and unsecured.

Secured loans are viable options for those borrowers who have some valuable personal property to put up as collateral. Unsecured loans are those which do not require any collateral to be put down to obtain or “secure” it.

An unsecured bad credit loan implies that borrowers get a loan by signing a contract without any collateral and without requiring a traditional, or a “hard credit check” to qualify. If a “hard” credit check is performed, it must then be reported to the credit bureaus, which will in turn negatively impact your credit score. Unsecured loans rely on the borrower’s agreement to repay their loan as stipulated by the terms and conditions of their contract.

Examples of such loans include personal loans, installment loans, auto loans and student loans, among others.

Payday loans and cash advances are also unsecured loans for people with bad credit. These are typically short-term loans for small amounts of $1,000 and less. They carry high interest rates, up to 400% and have to be repaid with your next paycheck. 1 hour payday loans lenders perform soft credit checks only, and fund the money on the next business day.

What Type of Bad Credit Loan do You Need?

If you are looking to get a loan with bad credit, it is essential to be conscious of what you need it for, so that you do not waste your time looking at the wrong loans which do not fit your particular situation. There are many financial solutions available to borrowers with poor credit, a list of which we have compiled below.

In it, we focus strictly on unsecured loans for bad credit, on the specific type they are, and on the level of risk for the borrower. The loan amount that a lender will be willing to lend you varies greatly depending on your credit history, and on whether you are gainfully employed or not.

How do Bad Credit Loans Work?

Personal loans for bad credit can be used for a wide range of purposes, from debt consolidation and credit card debt consolidation to financing larger purchases.

A lender reviewing an application from a potential borrower with bad credit either rejects him, or if the lender does approve it, it will involve a higher than an average interest rate. Sometimes the fees for such loans are as high as $25 per $100 loaned.

Applying for bad credit loans online is similar to applying for regular loans from a bank or credit union, whether you have a poor or excellent credit score. You fill out the loan application form with necessary details, including age, employment status, loan amount, and wait for the approval. Legitimate online lenders will typically make a soft pull to assess your financial situation and ability to repay. Once approved for the loan, you get the money on your bank account or checking account within one or next business day.

Types of Loans for Bad Credit

As was already described above, the high interest rates are a measure loan lenders use to balance their higher risk of funding a loan for a client with bad credit by trying to recoup the initial loan in an as short time as possible.

Here is a table that rates the type of loan with the likely interest rate that it would come with:

Type of Bad Credit Loan Average APR Risk to Borrower
Payday Loans 400% High Risk
Title Loans 300% High Risk
Cash Advances 400% High Risk
Bad Credit Installment Loans 100% Low Risk
Bad Credit Personal Loans 36% Low Risk

As you see, the borrower’s risk grows proportional to the APR level. The higher is the interest rate, the higher is the risk of a borrower to fall into a debt trap. The loan amounts range from $500 for bad credit payday loans from direct lenders to $35,000 for personal loans.

What Rates Should I Expect?

Rates vary from lender to lender, but on average, here is a rough guide on what you would likely see in terms of personal loan rates:

How’s your credit? Score range Estimated APR
Excellent 720 – 850 13.9%
Good 690 – 719 18.0%
Average 630 – 689 21.8%
Bad 300 – 629 27.2%; lowest credit score scores unlikely to qualify

The APR for borrowers with excellent credit scores usually is about 14%, while for those which credits need some improvement should expect to pay a much higher rate. If you are a borrower having the credit score between 300 and 629, you should expect to pay interest rates of about 27%. If your score range is even lower than 300, the chance to qualify for a personal loan is too little.

How to spot a Bad Credit Loan Scam?

Bad credit and a precarious financial situation might make you desperate when it comes to lenders who readily offer you cash on the spot. But just because your credit rating might not qualify you for a loan from your local credit union, does not mean that you should jump at the first opportunity to grab a loan without doing the research and reading the fine print.

When seeking for the best bad credit loans, look out for any suspicious promises or any other signs that raise red flags:

On-the-spot approval:

Any lender who assures you of qualifying for a loan regardless of your credit score, income and ability to repay, is most probably shady. Without evaluating any of the mentioned criteria means that this particular lender is not offering you a responsible loan. Therefore they do not care about you and your financial situation.

Upfront fees or charges:

Know that it is illegal for the lender to charge a fee for filing an application. Similarly, if you are charged a lump sum upfront (an “origination fee”) in exchange for the possibility to repay the loan over a longer period of time, your best bet is to take your business elsewhere.

Persistent mailings and other forms of contact:

Legitimate lenders do not pursue their potential clients doggedly by every means of communication. Beware if you are receiving constant mailings and callings from a lender.

Aggressive tactics in obtaining personal information:

It is always advisable to provide personal information only to those parties who you have already dealt with before. Be careful and do not give out easily sensitive information over the phone or online, especially if you were the one contacted without you approaching them first.

Intimidation practices:

Do not yield to pressure tactics by a lender because it is in your right to shop around, weigh your options, and take the time to make the right choice for you.

Check-up on the lender:

It is a wise practice to do some background research and check out a lender yourself. Look for some online reviews from previous or existing clients. Verify their standing through such organizations as the Better Business Bureau as well as the company’s address. Taking the trouble and doing some preliminary detective work of your own might save you many problems down the road.

Who to trust: What are the Signs of a Good Lender? Tips and Tricks

We recommend you consider the listed steps to find a reputable, responsible, legitimate lender who will help you out with the needed amount of money and also help you rebuild your credit rating in the long run. When looking for a bad credit loan lender, always look for one who:

  • Offers You Low Risk, Rather Than High-Risk Loans
    Payday loans, cash advance, and no credit check loans online are the riskiest due to the highest APR and the shortest terms of repayment. They also offer the minimum loan amounts from $100 to $1,000. Thus, they have the real potential to ruin your finances very quickly. Keep in mind that four out of five payday loans are rolled over or renewed, and the typical payday borrower spends more than half of the year in debt. Disastrous, considering that initially any of the mentioned loans meant to last only two to four weeks! So, choose low-risk loans, such as installment loans, debt consolidation loan, or loans for people with bad credit.
  • Takes Into Account Your Ability To Repay
    Predatory lenders are interested in trapping you into a short-term, high-interest loan that will be next to impossible to repay. It may lead you down to a cycle of re-borrowing or getting a debt rollover with additional fees and interest. A socially-responsible lender will look at your credit rating, bank account statements, and personal income to decide whether to approve or deny your loan request based on your realistic ability to repay what you borrow.
  • Carries Out A Soft, Rather Than Hard, Credit Check
    Avoid any lender who does not perform any credit checks. This means that the potential lender is a predatory one, looking to entrap you rather than help you out of a bind. Contrary to a “hard credit inquiry,” a “soft inquiry,” which can be run even by you on yourself or by a potential employer or landlord, is not visible to credit bureaus. So it doesn’t affect your credit score or any future credit applications you might make. Only you can see them on your report, and it makes no difference how many there are. “Hard credit checks” are generally initiated by lenders or credit card companies, and these do require your authorization. When this type of inquiry is run, it can affect your credit history and can remain on your credit report for up to two years.
  • Offers Flexible Terms And Repayment Plans
    Look for a lender who does not try to push you into a loan with a short-term repayment schedule with its accompanying high APRs, but offers you an installment loan with longer terms. Whether you want to repay your loan as quickly as possible, opt for a longer-term to keep your monthly payments low. Reputable lenders offer a range of flexible terms for the borrower to choose from.
  • Offers Higher Loans Limits
    While it is common practice to place a maximum limit on amounts given to individuals with bad credit, the best lenders will grant more significant loan amounts for borrowers who are in need of them.
  • Provides Reasonable APRs And Loan Fees
    For a borrower with a bad credit score, exorbitant high APRs are unavoidable, but the best lenders will still keep their interest rate competitive relative to your credit score. In terms of fees, you already know that application fees of any kind are illegal. However, there are still several fees that some lenders can charge, such as loan origination fees, late payments, and prepayment penalties. Decent lenders keep their fees as few as possible, and if they do charge a fee at all, they ask for a reasonable amount.
  • Specifics On Loans Are Readily Available
    Reputable lenders have nothing to hide and publish all of the specifics related to loans in an easy-to-find format on the pages of the websites.
  • Maintains A Good Reputation
    A reliable lender will have generally favorable or positive online reviews and good standing with such accreditation companies as Better Business Bureau. Also, take into account the number of years that the company has been in business.
  • Reports Your Payments
    A lender who is socially responsible will make an effort to report your repayment to the credit bureaus, which will help improve your credit score over time. This way, your loan can serve as a stepping stone out of debt and onto the road of establishing a solid credit rating.

How to Fix Your Bad Credit To Get Better Loans

You might feel it’s a classic case of Catch-22, but the best way to be able to borrow on better terms and get a higher loan amount is to raise your credit score. Being saddled with bad credit is not a sentence or a jailer, but a temporary setback. There are a lot of things you can do to change the situation for the better provided you are predisposed to put in the necessary work.

And any positive change you make, say shifting your credit score from “poor” to “fair” – from 580 to 620, will count hugely towards improving your credit score. This will, in turn, make a big difference in the terms and interest rate of the loan you will qualify for, which will save you a lot of money over the entire period of your loan.

Don’t bail out when you still have a fighting chance and consider taking these steps to rebuild your credit rating and qualify for better loans.

Check Your Credit Report

Get your hands on a free copy of your report as it is a good idea to check it regularly for any errors or fraudulent activity that might keep your rating in the pits. When it comes to your credit, what you don’t know could hurt you, so get in the know. If you are knowledgeable about your exact situation, you can put it straight fast and improve your rating.

Pay your Bills on Time

Late payments is the one thing that will damage and even destroy your credit score in a hurry. You can make sure they are always on time by setting your payments to be debited automatically from your bank account. And remember: making smaller and more frequent payments is better as it shows that you are using less of the credit you have available.

Don’t Use Most of your Available Credit

Making timely payments is the biggest contributing factor to your credit score, but by far not the only one. Credit scoring models are also designed to pay attention to your “credit utilization ratio,” in other words, the relationship between your credit limit and your credit balance. It might be just as important as your payment history.

For example, you have spent $1,000 from your credit card, and your available credit limit on that card is $2,000. That means that your credit utilization ratio is 50%, way more than lenders like to see. Experts say that it should hover somewhere around 30%, but 10% or less is ideal.

Maintain Long-standing Accounts

Keeping an account active for years lengthens your credit history. Even if it has a modest credit balance, and you use it to pay a small bill from time to time, paying it off as quickly as possible. It all counts to your favorable credit history.

Use Credit-Building Tactics

Opt for secured credit cards, which works based on your cash collateral deposit. If you put in $500 on your secured credit card, that is your limit. If you manage it sensibly, pay it on time and in full, you will qualify for a line of credit which will be upgraded after a period of 5 to 6 months of favorable activity.

Another trick is to get yourself included as a registered user on the credit card of a parent, another relative, or mentor, and their good credit history and activity will reflect on you, even if you never use the card yourself.

Keep To Minimum Credit Inquiries

If you are putting in a request for many credit cards or loan products, your credit is frequently being checked (where the lenders perform a “hard check”). This will reflect poorly on your score and drive it down for at least two years. Also, don’t open too many credit cards at the same time.

Request a Re-Aging of the Account

If you’ve had some delinquencies on a credit card, but you subsequently cleaned up your act, you can request for the issuer to “re-age” your account (to eliminate your late payment notices and go back to your pre-delinquency state).

For this, you must have made on-time payments for at least three months. Your past-due notations on your credit report for that credit card will then, with the agreement of the bank, be removed. However, don’t forget that there’s a set amount of time that collectors can use to collect on debts. Investigate this before you do any re-aging so that you are not tricked into “bringing back to life”, debts that were now categorized as not collectible.

Additional Steps You Can Take Toward Financial Health

Like any endeavor that you might undertake in life, if you fail to plan, you are planning to fail. Tackle the problem of your credit in the same coordinated and strategic fashion as any great leader did in history – with a plan.

Create a budget and start a savings habit.These might be small but are incremental steps towards building a sound financial future.

Invest some effort into rebuilding your credit. Even when you are repaying a loan, a high credit rating will qualify you for more loans with lower interest rates and better loan terms in the future.

Why Choose Lenders in Our Network? What Makes Our Online Bad Credit Loans Different?

Get best personal bad credit loans from our lendersWe understand that everybody needs financial help from time to time. You may be struggling with unfortunate circumstances, from which you might feel impossible to puzzle out, from emergency accidents and medical bills to suddenly losing your means of transportation. But such mishaps should not resign you to a life of debt. Our lenders are ready to give you a helping hand.

Our online lenders offer you safe personal loans that help improve your financial situation and your credit score. You can be sure that the soft credit inquiry that our lenders perform will not affect your credit in any way. Our lending partners will look into your ability to repay what you borrow and work with you to find a suitable loan with bad credit.

Online lenders in our network will collaborate with you to set a flexible repayment plan that fits comfortably into your life. And if you ever have questions on your loan application process or need help, you can always contact us. We are here to listen and talk you through the process or any difficulties that you might be experiencing.

References and Sources

  1. “6 in 10 Americans don’t have $500 in savings” – https://money.cnn.com/2017/01/12/pf/americans-lack-of-savings/
  2. “CFPB Finds Four Out Of Five Payday Loans Are Rolled Over Or Renewed” – https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/
  3. “The Average Payday Loan Borrower Spends More Than Half The Year in Debt To Lender” – https://consumerist.com/2013/04/26/the-average-payday-loan-borrower-spends-more-than-half-the-year-in-debt-to-lender/