Good credit history makes it easy for people to get any kind of loan at affordable rates. Having bad credit rating does not however mean that you are a bad person. It also does not imply that you will not get loan approval with bad credit rating. However, credit denial is a possibility, but there are many private lenders who offer loans to people with poor credit standing.
How credit scores work?
Credit reports include financial details about the loans and repayment history of individuals. It also provides information about how much you still owe. Credit scores are derived after evaluating all the credit report information. It helps lender get familiar with how you have been managing your credit so far. Credit score is a snapshot of your integrity as a borrower.
Lenders use a scoring model, while they evaluate loan applications.
- Poor – Less than 579
- Fair – 580 to 669
- Good –670 to 739
- Very good –740 to 799
- Exceptional –800 and more
Credit score between fair to poor can have issues in some kind of loan approvals.
Each lender differs in their credit score needs
Financial institutions need credit score over 600s for approving conventional mortgage. For personal loan your credit score in 500s can be hard or costly to get approved. Some lenders consider debt-to-income ratio to offer loan on bad credit but interest rates are high. Go to SimplePersonalLoans home page to use the loan calculator and get an idea of how much the loan will cost you for a specific duration.
Alternatives for loans with low credit
Many people don’t even try to apply for bad credit loan but choose to opt for car title or payday loans. Both are short term loans that need no credit check. It is an attractive alternative because they are certain they will not be eligible for traditional personal loan.
Unfortunately, these short term loans are very expensive overtime. According to a survey, 80% payday loans get rolled over keeping borrowers in debt for longer than they expected. Actually, an average interest rates charged on these loans are 400% APR in comparison to credit card that can be as high as 30% APR.
Avoid these alternatives and search for lenders prepared to offer borrowers bad credit loans.
What is the cost of bad credit loans?
Bad credit personal loans can be very costly. For example, if you need personal loan of £1,500 for urgent car repairs, then you can apply for a loan.
- If your credit is in a very good range, then you may get approval for loan of three years term at the APR 10% interest. Then you will need to pay £48 every month. Total 36 months payment will be £1731.52. Total Interest over loan life will be £ 231.52
- If your credit is poor but you got approved for 3 years at APR 40% interest then you will need to pay £67.11 monthly. Total 36 months payment will be £2,416. 03. Total interest over loan life will be £916. 03.
From the above example, a personal loan of £1500 for three years with bad credit, it can cost you £684.51 extra.