It’s quite frustrating to apply for many loans and have them all rejected due to bad credit. Most lenders understand that people with bad credit usually have other debts they haven’t paid back. That itself is an indicator that there’s a high possibility the lenders may also not get their money back, which explains why they would hesitate to lend you money if you have bad credit.
However, all hope is not lost. Several other lenders can still help you secure some money for an emergency you just got despite your having a poor credit score. Cash Payday Loans shares all the crucial information about bad credit loans you need to have as you consider and pursue this option.
What Is a Bad Credit Loan?
A bad credit loan is a category of emergency payday loans that people who have bad credit can easily access. Often, these loans are personal loans that an individual takes to help take care of personal financial issues or emergencies.
Also, these loans don’t put much emphasis on the borrower's credit score as they use other metrics to calculate how much a loan applicant is creditworthy at the time of the application.
These other metrics include your source of income and how reliable the income is for paying off a loan, any asset that can be put up as collateral, and the availability of a third party who can assure the lender that they will pay the money if there comes a time the borrower is no longer able to make their payments.
A borrower having a bad credit score means that their credit history is tainted with several, if not many, instances of poor debt repayment patterns. Credit bureaus such as Transunion and Equifax provide lenders with a borrower’s credit score and there are two main credit models used in calculating the score. These are FICO and VantageScore.
FICO is the most commonly used model that came from the Fair Isaac Corporation (hence the name FICO). It considers a borrower’s payment history, how long their credit history is, accounts they owe, new credit, and credit mix, and then it categorizes credit scores from very poor to excellent.
A score that is between 300 and 579 is said to be poor or bad, and not creditworthy. A score between 580 and 669 is said to be fair while a score between 670 and 739 is defined as good. From 740 to 799, the score is said to be very good and one above 800 is said to be excellent.
Bad credit loans are often aimed at those who have a score of 579 and below.
The Various Types of Bad Credit Loans
The types of bad credit loans available for borrowers with a low credit score can be categorized into two, secured loans and unsecured loans.
Secured loans are those loans where the borrower is required to offer up an asset to the lender that will act as safety assurance that the loan taken by the borrower will be repaid. And if the borrower fails to honor their end of the agreement, they give the lender the right to sell the asset to recover the money owed. Examples of assets used in bad credit loans are car titles.
Car title loans usually allow borrowers to take a loan of up to $25,000 (or more depending on the lender) with an extended repayment period that ranges from a month to two years. The borrower will be expected to make monthly payments towards the loan until the debt is paid off completely.
While car title loans are a good option for people with bad credit, it’s worth keeping in mind that they come with downsides like an Annual Percentage Rate (APR) of around 35%, which is very high. The APR of a loan is the amount of interest the lender expects the borrower to pay per year for a loan. In the case of title loans, the borrower will be expected to pay back the principal amount together with a yearly interest rate of 35% of the principal amount.
Unsecured loans are loans where the borrower isn’t asked to provide collateral. Lenders here put their hope and trust that the loan will be repaid based on the consideration of other factors like the income flow of the borrower. Examples of bad credit unsecured loans are payday loans, same day cash loans and installment loans.
Payday loans are loans offered to borrowers in urgent need of money with the intention of repaying soon as they get their next payment. Typically, borrowers taking this route have to give lenders proof that they have been getting paid over the months and that they’ll be comfortably able to pay back the loan they take when they get paid.
Unlike car title loans, payday loans are paid back through one big payment as opposed to monthly payments. And since payday loans can’t be given in the long term, the borrower is often required to pay back the loan in around 14 days. While most are small payday loans, some lenders allow borrowers to get up to $1,500 or even $5,000 while others may offer more or less depending on individual factors. On average, payday loans may attract an APR of 450%.
On the flip side, installment loans provide a more flexible payment period that may range from two months to two years. The highest amount a borrower can get on an installment loan is $10,000, but it can come with an APR of around 300%.
Debt consolidation loans are also a great option for borrowers with many scattered debts. A debt consolidation loan helps to bring all the debts together and settle all of them at once. It helps not just with boosting credit scores but with also cutting down on the monthly payment the borrower has to make and the interest rate can also be reduced if the borrower negotiates well with the lender.
Steps to Take to Get a Bad Credit Loan Online
Applying for bad credit online loans through Cash Payday Loans is quite easy and intuitive. And it only takes a few minutes to get your application in the eyes of many of our lenders.
Here is an easy-to-follow process for you to apply for the loan:
- Fill out the bad credit loan application form. This application form is what you need. You're required to enter your personal details in the respective empty fields, where you’ll share important details about yourself, your bank, and employment with our lenders.
- Don’t worry if you're not employed. You can still get a loan from our lenders if you have something that’s bringing you a steady income and which you can provide proof of.
- Receive feedback from our lenders - After submitting your application, our lenders will go through it shortly afterward, and you’ll get quick feedback. Our lenders are always on standby for any applications and the turnaround is fast. Some lenders may decide to perform soft or hard credit checks (or both) on your application while others won’t do that as they’ll use other ways to figure out if you’re qualified.
- The closing phase - If you get approved, you’ll have to sign some documents to seal the loan agreement deal and you may be able to get the money deposited in your account within hours of applying. If not that day, it should be the following business day.
- Repayment - Your loan agreement will have the specifics of the repayment highlighted as you agreed with the lender. After receiving your money, you should plan how you’ll repay as per the agreement. You can decide to set scheduled payments to the lender on the due date of your installments if your loan will be running for several months.
What to Keep in Mind While Pursuing a Bad Credit Loan
Before you open that loan application form to begin your loan pursuit, it’s important to take time to consider things at great length. That will help to ensure the loan you take handles all your financial difficulties and have you repay it comfortably without ending up in a bigger financial mess like accumulating charges for overdue loans. A couple of things to evaluate include:
- Necessity - Ask yourself if you really need the loan. Oftentimes, we believe that we need something when we really don’t. It’s important to differentiate a need from a want and determine if what you want to do with the loan is something you can live without. Ideally, you should avoid taking a loan for wants so that when serious needs or emergencies come knocking on your door, you’ll be able to take care of them with the loan before you get your income. Also, if you took a car title loan to pay for something you didn’t need, you run the risk of losing your car. So, if you’re going to take that risk, it better be worth it.
- Repayment expectations - Whenever you consider getting an online instant loan, you should ensure that repayment requirements work well for you. Making sure the amount you’re supposed to pay on the loan’s due date is a portion of your income that will allow you to meet other needs in your life after paying it off, gives the confidence that you won’t get into more debt.
- Annual Percentage Rate (APR) - While it’s common that most bad credit loans have a high APR, you should go for the offers that have the least percentage. Lenders differ when it comes to terms and conditions, and evaluating your options closely and picking the loan with the most favorable APR will keep your debt low.
- Penalties, charges, and fees - Some lenders will give you a loan without any fees or extra charges. However, for those that will charge you, see that the origination fees, prepayment charges, and late fees are manageable. Again, compare what each lender is charging and try to pinpoint the offer that best fits your income, and your current as well as future plans as far as repaying the loan is concerned.
- Lender’s reports - Some lenders notify credit bureaus about loan repayments and the clients they worked with. If you’re paying your loan faithfully, you naturally want to be in the good books of credit bureaus so you can access more loans easily. This being the case, you’ll want to choose lenders that send the reports so your status improves every time you work with them.
- The loan amount - Some lenders may offer you the opportunity to take more money than you need at reduced interest rates, and it may be tempting. However, you should consider how much you’re expected to pay back and see if you can do it effortlessly. The last thing you want is to get into more unnecessary debt (for the sake of low-interest rates) and then fail to meet the repayment expectations and attract further charges and penalties.
- The repayment period - Consider how long the lender is letting you repay your loan. Having extended periods may be peace-giving as the monthly installment amount may be low. However, you should remember that the longer the repayment period given, the higher the interest will be.
Frequently Asked Questions About Bad Credit Online Loans
What are some things I should keep in mind to fasten my loan application process?
Before you apply you should have all the basic needed documents ready. Some of them include your employer’s details, your yearly income, some utility bills for confirming your address, your bank statements for three to six months, your social security number, and any document for assets you wish to put up as collateral (if you want a secured loan). Also, submitting your online loan application form early in the morning (preferably around 10 a.m. or earlier) might help increase your chances of having the lender send the money to your account before the end of the day.
What are the best substitutes for bad credit loans?
First, reach out to your life savings. If you have some money kept aside for future use, or an emergency, or maybe you’re saving up for something you want to buy, this is the time to use it. And when you get paid, you take money from the income you get and return it to savings. That can be considered to be a way of borrowing yourself without having to pay the extra charges and interest. The second way is to talk with your family and friends. They can easily help you raise the money you’re looking for and since you know each other very well, you can get the money without having to give collateral or worrying about being charged fees for falling behind on the repayment dates. Also, religious and not-for-profit organizations, and credit unions too, can make donations for you if you approach them and convince them you’re in dire need of money. Additionally, you can consider putting up for sale some of the things you own but don’t use. If you can get some household items or other valuable forms of equipment, you can list them on online selling platforms and fetch a good price for them that can solve your financial problem. You can even decide to use pawn shops to get money for the same items. If all these fail, you can now opt for a bad credit loan.
What is the best step to take if I don’t get money to pay back my loan?
When you realize you may not be able to repay your loan on the date agreed between you and the lender, you should reach out to the lender way before the due date and express your concern. The lender may be able to provide you with relief in terms of a repayment holiday. If that’s not possible, the lender may come up with a proposal that will help make the repayment more convenient for you.
It’s my first time applying for bad credit loans online. Will I get approved?
It doesn’t matter whether or not it’s your first time applying for a bad credit online loan. If you are trying to get an instant cash advance, lenders will give equal priority to your application as they do to others even if you have bad credit. And if you qualify for it, you’ll receive a notification letting you know that you’ve been approved.
What’s the highest amount I can get from a bad credit loan?
It varies with every lender and type of bad credit loan you have your eyes on. You can fetch a higher amount with a secured loan than with an unsecured loan. Also, depending on your income and other qualifications that lenders consider to determine if a borrower is creditworthy, you may be able to get access to a higher loan limit if the factors check out in your favor. Moreover, the state you’re in may or may not limit you in terms of the amount you can get. Some states like Arizona, New York, Arkansas, and the District of Columbia don’t allow payday loans while others like Washington and California have quite some restrictions. If you’re in a state that allows bad credit loans, you may manage to get a relatively high amount of money.
Why has my loan application been rejected?
There are many reasons why your loan may have been rejected. Our lenders always note a reason for rejection in the rejection notification they send you when they confirm you aren’t a good fit for their loan products at that time. You can address the reason for rejection and try to apply again, and you may get approved the second time. Some popular reasons why your loan request may have been declined include lack of a stable income source, multiple running loans and debts, irregularities on your application, or not having an asset you own that you can give the lender as collateral.
How do I ensure I don’t miss my loan repayment date?
You should consider automating your loan repayment through your bank. There are three ways the repayment can be automated. First, you can have a standing order that directs your bank to make payments to a given account every month on a given date. Once the loan has been fully repaid, you can pull down the order. Second, you can work with direct debit which allows the lender to withdraw an agreed amount of money on a monthly basis from your account on the loan’s due date. Third, you can choose a continuous payment authority that permits the lender to get into your account and decide the date and the amount of money they’ll be taking per month.
What is a credit check? And what’s the difference between a soft and a hard credit check?
A credit check (also called a credit inquiry) is a process that allows lenders to look through your credit history and see your credit score. There are two types of credit checks, a soft and a hard check. A soft check is what many lenders prefer to do on all applicants. Soft credit checks don’t interfere with a borrower’s credit score. On the other hand, a hard check is a request that lenders send to credit bureaus to ask for your credit report. Hard checks do interfere with your credit score and can be a reason your loan will get rejected.
Do lenders run hard credit checks on all loans?
No. Some lenders don’t do hard checks. Instead, they perform soft checks to help them see how creditworthy you are. For most bad credit loans, what the lenders are interested in knowing is how able you are to repay the loan they’ll give you. That’s why your income will be checked if you’re taking an unsecured loan. For those borrowers who fear their poor credit score may cripple their ability to get approved, opting for a secured loan like a car title loan can help increase the chances of approval. Credit checks on secured loans aren’t really necessary.
Do lenders offer guaranteed approval for bad credit loans online?
No. It’s pretty difficult to have any lender give complete assurance to any borrower who sends an application for a short term loan that they’ll be approved and given a loan. Guaranteed approval loans are among the different marketing techniques used by untrustworthy lenders to draw in borrowers. Every genuine lender will want to assess a borrower’s ability to repay a loan before giving them the loan to be confident that the amount they approve will be repaid by the borrower seamlessly in the agreed period. It’s going to be hard for you to have any lender approve your loan request if you don’t have a stable income and if you fall short on other factors they consider.
What’s the best way to maintain an excellent credit score?
To begin with, always monitor your credit reports and know what score credit bureaus have given you. Look through the reports and if you notice any issues or mistakes, raise them immediately with the bureaus so they can be handled before lenders perform hard credit checks. Secondly, consider taking debt consolidation loans as they’ll help reduce the number of loans you have and the annual interest rates you’re required to pay. Thirdly, keep away from loans that are highly likely to require lenders to perform hard credit checks. Lastly, always keep up with your loan repayments.