Finding the best possible loan terms can take some searching, but when it comes to getting personal loans for bad credit management purposes, the challenge can be that much more testing. Why? Well, lenders are a little hesitant to grant such loans unless they are protected by high interest rates and low principals.
But that is not to say that bad credit borrowers are devoid of options. There are lenders who offer competitive terms and grant approval with low credit scores. However, it generally means avoiding the traditional lending institutions, and turning to either alternative providers or online lenders.
But what are the options open to a bad credit borrower in search of good terms on a personal loan? Well, there are three popular source options. Namely, established traditional lenders, online lenders and private lending companies.
A Traditional Bank Loan
Some banks are willing to take on the risk involved in lending to an applicant with a bad credit history. The reason usually comes down to the purpose of the funds. Approving a personal loan for bad credit management purposes is seen as less of a risk than a general loan. The borrower clearly wants to improve their situation.
The problem is that banks charge much higher interest rates on these loans, often 2% – 3% more than the normal rate, depending on the sum sought and the bank lending policies. And, to have any chance of approval with low credit scores, the applicant must be an account holder, and may need to provide collateral.
There are some advantages to this deal, despite the high interest. Firstly, a personal loan approval is more likely if the relationship with your bank is good. Secondly, they also know your credit history already. Finally, they are more likely to bend the policies, such as extend the repayment period, from say 5 years to 10 years, to make the repayments more affordable.
A Private Lending Company
Lending companies operate independently of the established banks, and have less stringent lending policies in order to attract business. They specialize in lending to bad credit borrowers, and as such the terms of their personal loan for bad credit borrowers are pretty good.
However, the repayments are affordable mainly because the repayment term is longer than usual, sometimes extending to as much as 30 years. This lowers the share of the principal repaid each month, so approval with low credit scores is not a problem.
But this also means that the interest paid over the lifetime of the loan is extremely high. The question is where the overall cost of the personal loan is worth it, and usually the answer is yes. Private lending companies are also very open to restructuring existing loans, so there is always an option available.
There is no doubt that online lenders are fast becoming the most popular alternative to traditional banks as a source of loans. And when it comes to personal loans for bad credit borrowers, the terms offered are very hard to beat.
For a start, the interest rates are usually 1% lower than normal – though this may not be the case when the credit score is very low. The lower rate is mainly due to lower overheads, so lenders can afford to be more generous. So, getting approval with low credit scores is more likely.
However, there are risks involved too. It is essential that online lenders are checked out before making any commitment to a personal loan deal. Consult either the Better Business Bureau website, or the Verify1st site, to check on their reputation.