A financial crisis is not new, and so is the tedious loan procedure. The chances for achieving a helpful loan are rare, especially for those with a poor credit history. Like everything comes with a price, so do bad credit loans. Here is a discussion on aspects of bad credit loans that might come in handy for a borrower.
What does poor credit indicate?
The term poor credit never sounds good when it comes to borrowing money. One can find the lenders hesitant in lending loans to people with bad credit. It is natural for them to do so because a poor credit history implies a low repayment capacity of an individual that lenders mainly try to avoid. But today, when everything is one step ahead, there are loans, especially for those with a poor credit history. People call it a bad credit loan. However, as simple as the word sounds, so challenging is the hunt for lenders willing to offer such loans unless a person has something worth using as collateral.
Bad credit is not a new thing, and there could be many reasons responsible for its decline. A credit score of 624 and below is an indication of poor credit history. Payment defaulters usually have such low credit scores under diverse circumstances. Here are a few reasons for a poor credit score.
- Beginner: If a person is approaching for loans for the first time, there are chances for the lender to have no financial record or track of the borrower. In such cases, the lenders might deny offering a loan, considering no loan records. It can lead to a poor credit score for a person.
- Unpaid bills: bill payments are tedious. One needs to keep track of every bill amount and pay it in time. But there are times when one misses the deadline due to financial issues or loss of deadlines, which badly affects their credit score in the financial market.
- Untimely payments: A poor loan history is also responsible for poor credit. It could be due to untimely repayment of loans in the past or not paying to date. The lenders would be reluctant to offer loans in such cases, considering one might repeat similar chores in the future. It adds to the inability of a person to repay loans, which further declines the credit score.
- Credit application failure: the denial of credit application itself has many reasons related to the financial instability of a person. It is a clear indication of a poor credit score.
How do banks discriminate based on poor credit?
It is challenging to find the best credit loans for poor credit history, especially if a person knocks on the door of a bank. First of all, a bank is more likely to deny one’s request for a bad credit loan. The stakes are high if it is an unsecured loan without collateral property in play to secure the loan for the borrower. However, the bank might agree to the loan, considering the borrower has a promising monthly earning with a reputable firm. There would be a few negotiations and discrimination from a borrower with a high credit score, though. Firstly, the bank will lend with a high interest rate. Then, a low loan amount will follow, 10-15% lower than a usual loan amount. Also, the bank is more likely to allow a short repayment tenure, which would prove hectic for the borrower.
Where to find the best credit loans?
Now that the banks hardly leave a choice, it is necessary to look for better options. Thankfully, there are other options to consider while seeking the best credit loans for poor credit history. These are NBC and P2P. The names might sound strange, but they are the best alternatives.
- NBC: It stands for non-banking financial companies. NBC offers bad credit loans even for the lowest scorers with a slightly higher rate of interest. However, they have a better say than banks when it comes to offering low credit loans.
- P2P: These are peer-to-peer lending websites that strive towards offering loans for low credits.
Though it is challenging to avail of bad credit loans, a few alternatives serve well. The ones struggling with a poor credit score must consider the diverse options available.