People choose to avail personal loans to meet variety of requirements such as education fees, hospitalization charges, business needs, and many more. Good credit score and strong financial history are the factors that determine the creditworthiness of the person and the sanctioning of the loan depends heavily on the credit record of the person. A good CIBIL score gives the sense of confidence, assurance and security to the lender in terms of repayment of the loan; hence borrower with good credit score is given the preference for the loan sanction. However, even people with an average or a bad credit score can also avail the benefit of a personal loan, if he or she can manage the finance & transactions in better terms. Finance Buddha is offering you few guidelines with the help of which, people with bad credit scores can also avail the benefits of personal loans.
- Use a Collateral to avail the Loan
As stated above, the lenders always seek of assurance in terms of repayment of the loans. When you have a bad credit score, such assurance is not provided to the lender. In such a tricky situation, the person can provide assets, such as “Car” or “House” as collateral against the amount which is to be availed. Such collateral can improve the interest of the lenders to provide you loan and they approve your loan almost instantly.
You can, even use the Fixed Deposits, PF, insurances, or other securities as collateral to avail the benefits of the loan. When you put such assets as collateral, the approval of the loan gets almost ensured. Also, the money invested in such assets keep on reaping the benefits and you get the loan amount, too. The duration of the can be as long as the tenure of such assets that are for example, fixed deposit tenure. So, the person can plan the repayment schedule accordingly. Another way is to avail the loan by putting gold or silver as collateral. Such loans are provided on the lower interest rate than usual.
- Improve Your Credit Score to avail the Loan
The person can improve the chances to get personal loan by improving the credit score. By doing so, you can even get the higher amount of loan with relatively lower rate of interests. If you have any pending installments or bills or any dues, you should immediately pay that off. The payments of them will contribute to increase the credit score. Another trick is to borrow small amount of money and pay it off in the short duration. You will not have to pay high interest fees for such small duration plus the repayment will increase your creditworthiness in no time. If you are looking forward to borrow a large amount of money, this strategy can be helpful to improve your credit ratings and thus, your chances to avail the loan gets higher too.
- Borrow from Local Agencies
If you have a bad credit score, then there are high chances that traditional banks may not provide you loan. In such cases, you can avail the loan amount from other local agencies or lenders. However, there is a possibility that such lenders may charge high interest rates.
- Borrow from Credit Unions
The credit unions are created in order to support the individuals to get the loans. These unions are created on the basis of common goal or purpose. These unions can be owned by people coming from similar geographical area or similar industry or even from the same interest. These unions are providing the loan to people at relatively lower interest rates then the market. These unions provide loan to individuals even if they hold low credit score because of their sympathetic approach.
- Co-signer for Loan
When you hold a low or bad credit score, the lenders will be skeptical to offer you loan. At the same time, if you bring a co-signer, who has a good financial history and can co-sign a loan with you, then the lender can approve the loan for you. The co-signer is a backup for the lender, as in case, if you are not able to repay the loan, then lender can ask for the payment from the co-signer. The co-signer should be a person, who knows you personally and has a will to co-sign a loan with you. In such case, the main borrower has to ensure the timely repayment of the loan so that the co-signer does not gets affected.
Before having a bad credit loan it becomes very important to know the pros and cons of a bad credit loan.
The pros of a bad credit loan
Bad Credit loans are often Fast as most of the bad credit loans are available online and hence they take a few hours to give the response to you.
Bad credit loans come at a high interest rate as compared to other loans, however, it likely would come at a lower interest rate than the credit card debt.
There are many options for it as the peer-to-peer lending businesses offers this loan.
Can help you to Improve your credit score, If are committed to making timely payments, your credit score can be improved.
Flexibility in the repayment tenure depending on your lender, with many lenders the repayment tenure could stretch from one to five years.
The cons of bad credit loan
It may come at high interest rates. As the lenders at risk so they charge a high interest rate for a bad credit loan.
The penalties charged in case of EMI default can be high.
You may be required to give a Collateral against your bad credit loan to minimize the risk involved to the lender.
(Updated – 29-05-2019)