Do you need a personal loan on priority? And has your credit score been keeping you from getting a regular personal loan? So, you might be looking into bad credit personal loans as a last resort. As such, getting the correct information with regard to loans is essential. And the process allows you to make the right decision when comparing lenders and making the final jump.
You should not take such decisions lightly, so here is a guide to bad credit loans.
What’s Considered Bad Credit?
If you’re in Australia, then you’re going to judge your credit score based on the three most prominent credit reporters in the country. Based on what they consider good or bad credit, you can judge yourself!
- Equifax – 0-509
- Experian – 0-549
- Illion – 1-299
What’s A Bad Credit Personal Loan?
So, now that you’ve figured out where you stand when it comes to credit, you’re probably wondering what your options are. As such, one of your best options is a bad credit personal loan.
A bad credit personal loan is specifically designed for people with bad credit history. And, this is helpful for multiple reasons, from consolidating larger loans to paying off emergency debts.
There are two types of bad credit loans you can opt-in for. There are personal unsecured loans that don’t require any collateral but have incredibly high-interest rates. Here, lenders will subject you to more rigorous financial and background checks to make sure you can pay back the interest.
Meanwhile, secured personal loans don’t have an interest as high, but they require an asset as collateral. The asset, something like a car, is seized in the event that the borrower can’t pay back the loan.
Considerations Before Applying
Before you consider applying for a bad credit personal loan, there are a few things to consider:
- Pre-approval: Some lenders offer a pre-approved decision, so you don’t have to live in suspense.
- Loan Requirements: Different lenders have different requirements for such loans. So, go through the terms to see if you’re going to make the mark.
- Negative Impact: Such loans trigger a harder credit check, and rejection will lead to a drop in credit score.
- Interest Rate: Some lenders require up to 20% in interest on such loans. Hence, see if you can afford this interest rate before applying.
Payday Loans vs. Bad Credit Personal Loans
Bad credit loans are often compared to payday loans, as both are options when you have bad credit. But, payday loans come with a lot more negatives.
Despite not having an interest charged, payday loans have a lot of fees. Some lenders will charge 20% of the loan amount as a fee. There will also be fees on the amount for every month that you delay repayment.
Payday loans are also for a much shorter period, while bad credit loans can go for up to 7 years despite the loan amounts never going above $50,000.
Can You Fix Your Credit Score?
If you’re looking to fix your credit score for a better chance at getting a bad credit loan, then here are some options:
- Pay any defaulted bills
- Don’t apply for too many loans
- Avoid defaulting on any existing loan payments
Bad credit is not the world’s end, as there are always options, even when your credit score isn’t ideal. As such, bad credit personal loans are an excellent option for when you need the money for an emergency or consolidate your debts. And despite the high-interest rates and meagre amounts, there are multiple lenders that you can choose from to get a competitive rate.
Hannah Gilbert is a freelance writer who offers to ghostwrite, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.