Personal Loans for Bad Credit
Personal Loans for Bad Credit - Search and find the ideal personal loan for you ✓ Compare personal loans ✓ Start your search at MONEYBANKER.com
Loans updated: 02-17-2020
Personal Loans For Bad Credit
Personal Loans for Bad Credit - Search and find the ideal personal loan for you ✓ Compare personal loans ✓ Start your search at MONEYBANKER.com
Personal Loans for Bad Credit
Personal loans are a great way to consolidate high-interest credit card debt as well as many other potential uses. However, navigating through your many personal loan choices can prove to be difficult and frustrating especially if you have bad credit.
The purpose of this guide is to offer you an in-depth guide and overview of personal loans, the application process, potential scams to avoid, and more. We will break the guide down into different sections for easier navigation. Continue reading to learn more about personal loans.
The Basics Of Personal Loans for Bad Credit
What Is A Personal Loan?
A personal loan is a type of loan that is given to an individual for personal use as opposed to business use. This means they can be used for just about any purpose you can imagine. Some common examples include car repairs, credit card consolidation, high-value item purchases, and more. The only determining factor is that funds are used for your personal use as opposed to business.
Do Personal Loans Require Collateral?
Generally speaking, personal loans very rarely require any type of collateral. This is why they are often referred to as unsecured loans or signature loans. When you take out a personal loan, the promise to pay is only backed by your signature as opposed to collateral like a vehicle title.
What Is The Application Usually Like?
When you apply for a personal loan, you will generally start by filling out an application that asks for things like employment history, income amount, residence information, and more. The application is completed and then your credit is pulled with your permission.
The bank or financial institution then uses the information you provided and your credit score to make a final lending decision. The exact guidelines differ slightly between each lending organization. However, since personal loans are unsecured, you can expect a stricter credit and income requirement.
The process varies by company but you can expect a loan decision in as little as just a few minutes. The amount of time it takes to qualify for a loan varies based on how long it takes creditors to verify certain information like your employment status.
Important Elements Of Your Personal Loan
The APR is given to you when a financial institution is making a lending offer. This percentage factors in the costs associated with your loan like funding fees, commissions, and more over the course of a year. It provides a very easy way to gauge the total costs associated with taking out a given loan option.
The Interest Rate
The interest rate is generally the figure that you see advertised on financial websites. This figure reflects the total amount that lenders charge you over the course of the year for your loan. However, this figure does not take into account miscellaneous fees like the APR above does. With this in mind, it is not uncommon for your interest rateto be less than your APR.
The repayment term is basically the amount of time you will have to make installments on your loan. Upon its completion, you should have paid your loan in full assuming you have made all payments on time and in full.
Your payment amount is the amount you are expected to pay in full on each due date. This amount will then be split between principal and interest based on your payment schedule. Generally, as the loan progresses, more and more of each payment goes towards principal with each payment based on your amortization schedule.
Payment Due Date
As the name implies, the payment due date is the date you are expected to make the payments on your loan. The date and frequency can differ based on the lender. Common payment dates are weekly, bi-weekly, and monthly. Many times, you can work with your lender to establish payments on certain dates.
A cooling-off period can be one of two things with a personal loan. The first version allows you cancel your loan without any penalties within a certain period of the loan’s origination. The second version applies to requesting a second loan from a provider. Some lenders require a certain amount of time to pass before another loan can be requested. Cooling-off periods differ from lender to lender and not all of them have one.
How Do Personal Loans Work?
Personal loans are fairly simple and easy to apply for. Basically, you begin the process by applying for a loan with a loan provider. Upon approval, you will usually receive your funds via direct deposit into your checking or savings account. Some providers allow you to opt to receive a check instead for an additional fee.
Once your loan has been issued, you make payments per your agreement with the lender until it is paid in full. Payments are usually deducted from your checking account via ACH. Some lenders are able to accept payments via debit card instead.
The Benefits Of Personal Loans
Personal loans have many benefits that make them a great choice for many consumers. The purpose of this section is to offer a detailed overview of the different elements of personal loans that are most beneficial to most consumers.
Personal loans very rarely require any type of collateral. This is why they are generally considered unsecured loans. This is a great benefit for those who do not want to risk their valuable possessions like automobiles. Their unsecured nature is a prime reason many turn to personal loans for a variety of uses.
No Fund Use Limitations
Personal loans are designed to fulfill a variety of consumer uses. The flexibility to use the funds in a manner that is most beneficial to you makes it a great choice for many consumers. They are often used to consolidate existing higher interest debt, finance large consumer purchases, pay for car repairs and more. This flexibility is one of their greatest benefits.
Quick Application Process
The lack of collateral greatly simplifies the application process for personal loans. Generally, you simply give the lender permission to pull your credit and help them verify your employment after completing your application. This results in a faster application and decision-making process.
Fixed Interest Rates Provide Stability
Credit cards come with something known as a variable interest rate. These rates change with time based on an underlying benchmark. This can create issues budgeting for payments since they can rise with time. Fortunately, most personal loans have a fixed interest rate. This provides a greater deal of stability and peace of mind.
Fixed Payments Are Budget Friendly
Another great feature of most personal loans is that they come with a fixed payment amount. This is a great benefit for consumers who are looking for ways to effectively build and maintain a household budget. Knowing what your future payments are is a great way to ensure you can make your payments consistently and on time.
Fixed Repayment Schedule
If you’re looking for a loan that you will know the exact month and year it’s paid off, then a personal loan is a great choice for you. Personal loans have fixed repayment schedules that make managing your long-term finances very easy.
Lower Interest Rate Options Than Credit Cards
It is common for personal loans to offer superior interest rates to comparable credit cards. It is not unusual for some credit cards to have interest rates as high as 15 or 20%. This is a great benefit for those who are looking for ways to finance a purchase while saving with competitive personal loan rates.
The Drawbacks Of Personal Loans
While personal loans do have many benefits that make them a great choice, there are also some drawbacks to consider. The purpose of this section is to examine some of those elements in greater detail so that you can make an informed decision.
Tighter Credit Requirements
Because personal loans are unsecured, they generally have tighter credit requirements. There are some other options available for those with less than stellar credit like peer-funded personal loans. However, personal loans that are unsecured will always have tighter credit restrictions as opposed to loans that are secured.
Loan Amounts May Vary
Due to their unsecured status, the amount of your approved loan may vary significantly based on your credit score and income amount. This can make it difficult to finance larger purchases or projects that you may be planning. For larger purchases like automobiles, consider a secured car loan instead.
Loans Are Non-Revolving
One downside of personal loans is that they are non-revolving. What this means is that your payment amount, loan amount, and pay off period are all set. While this does have many advantages in terms of budgeting and cost effectiveness, it does result in some flexibility issues.
Revolving lines of credit are things like credit cards and home equity lines of credit. These products allow you to borrow from your credit limit when the need arises. This allows consumers to borrow funds when they need it most. This flexibility is why many consumers decide to use these products and keep them ready in case of emergency.
However, this flexibility does come at a cost. Revolving lines of credit typically take much longer to pay off and usually have adjustable interest rates. They also have payments that can wildly fluctuate based on the amount of credit that is currently being used. This can make the process of building a monthly budget extremely difficult.
Getting Ready To Apply For A Personal Loan
This section will focus on what you need to do to prepare for your personal loan application. It will also offer tips on how to get your application processed as quickly and efficiently as possible while you explore quotes with different lenders.
Start With Your Desired Balance
The first step you must take before applying for a personal loan is to get an accurate total of your desired loan amount. If you are considering consolidating credit card debt, then first you must total all of your credit cards you want to pay off. If it is for a large purchase, make sure you know how much it will total after any relevant taxes and other charges. Once you have this total, you are ready to proceed further.
Check Your Own Credit
Before you begin the application process, it is important that you check your own credit if possible. You are allowed free access to your credit reports from all three bureaus once every 12 months.With this in mind, consider requesting your reports so you can review it for any inaccuracies before proceeding with your application.
Gather Your Verifiable Income Documentation
The next step you need to take is to gather all of your verifiable income documentation. This generally consists of things like paycheck stubs, retirement statements, and more. Most loan companies will want to see detailed income documentation for one to two months. By gathering this documentation in advance, you can help speed up the application process.
Know How To Verify Your Employment
If you are still working, your job likely has a way to process employment verifications. Do not hesitate to reach out to your human resources contact to inquire about this process. Ask them for the number that you should provide to the lender to verify your employment to simplify the process.
Understand Gross And Net
It is important to know the difference between gross and net when preparing to fill out a loan application. Gross pay is the total amount of your earnings before any deductions are made.On the other hand, net pay is after any relevant deductions like taxes have been made.Pay careful attention when completing your loan application to make sure you are using the right figure per the lender’s instructions.
Fill Out All Forms As Accurately As Possible
Take your time filling out your application and other forms. It is imperative that you complete them as fully and accurately as possible. Any discrepancies in your application can result in an increase in processing time or an outright loan denial due to insufficient income. This section goes hand in hand with understanding the differences between gross and net pay above.
Shopping For The Best Rate
Remember, it is important to get as competitive of a rate as possible when applying for a personal loan. Fortunately, the web makes it very easy to shop multiple lending offers in one convenient place using a comparison website.
Comparison sites allow you to shop several different lenders at the same time and offer a rough approximation of their lending rates. They also usually show what the lender's credit requirements are and offer reviews of their products.
When it comes time to complete your applications, it is important to remember to complete them in a short time frame. This is due to multiple inquiries being counted as a single inquiry on your credit report when completed within a short timeframe. This results in less of a ding on your credit report.
Personal loans offer a great deal of flexibility and are the perfect solution to many problems. However, it is important that you are well versed in ways to avoid being scammed when searching for a personal loan. This section will offer you many different ways you can arm yourself against would-be scammers.
Beware Of Lenders Who Ignore Payment History
Personal loans are unsecured and are higher risk than their secured loan counterparts. As such, lenders must pay careful attention to a borrower’s payment history and spending habits in their credit reports. Any lender that claims to not consider your past payment history is likely a scam that you should steer clear from.
Look For Relevant Lending Bank Info
It is important to look for the lending bank institution’s information when you are researching potential options. Lenders are responsible for providing this information to applicants when processing their loan request. You should be able to find this either on their website or within your proposed loan paperwork.
Prepayments Are Required
If the lender is asking you for money upfront to process your loan, it is likely a scam. Fraudulent websites will frequently ask for things like credit check fees, funding fees, insurance, and more. However, in legitimate loans, these fees are reflected in your APR and are incorporated into your loan. You should never pay any fees before receiving your money.
Make Sure The Lender’s Website Is Secure
When you decide to proceed with an application, it is important that you make sure that the website is secure. This can often be verified by looking for a lock icon in the top left-hand corner of your address bar. Any site that is insecure should not be used to transmit sensitive information like your bank account number and social security number.
Look For A Physical Address
A reputable lender will have some form of physical address for their offices. This can often be found at the bottom of their website or in their contact section. If you cannot find it there, then examine your application or other loan paperwork. A reputable lender will always have a physical address.
Avoid High Pressure Tactics
If the website is offering a special that ends today, you may want to steer clear. While specials may exist in many retail environments, personal loan companies are generally not one of them. It is important that you do not rush the personal loan process and proceed in a calm and collective manner.
Never Provide Information To Unsolicited Sources
It is important to only provide information to sources that you know and trust. Many times, websites may become compromised and your contact information may be picked up by scammers. They will begin contacting you urging you to apply for products over the phone or by email and request your personal information. If you have not initiated one of these transactions or are unsure of the validity of the caller, then never give them any of your personal information.
Understanding A Personal Loan’s Credit Score Impact
The decision to take out a personal loan has many potential impacts on credit. The initial process of applying for the loan results in an inquiry that will slightly decrease your score. This is why it is important to complete any relevant loan applications in a short amount of time so that they are counted as one inquiry.
Once your loan funds, it will show on your credit report in a month or two. This can either increase or decrease your credit score depending on several factors. If you are using the loan to consolidate credit, it will possibly increase your score if you are paying off maxed out cards. This can be beneficial to those who are wanting to improve their score.
However, if you continue to carry high credit card balances in addition to your personal loan, it can drop your credit score. This is due to having a high debt load. This is why it is important to make an informed decision when applying for a personal loan.
With continued on time payments, your score will continue to increase. This is due to the positive reporting that your personal loan provides to the credit bureaus as you continue to make your payments. This is a great benefit for those who are looking to establish a positive credit history.
What About Secured Personal Loans?
While most personal loans are unsecured, there are some secured options available. These secured loans usually give borrower’s with less than perfect credit access to funds when they need it most.
The most common type of secured personal loan is a vehicle title loan. To apply for this type of loan, you will need a car that you have paid for that you own the title to. One downside of this loan is that your loan amount is often limited by your car’s value. You also run the risk of repossession if you fall behind in payments.
Other secured loan options use things like savings account balances and CDs as collateral. Some programs even allow recreational vehicles and furniture to be used as collateral. The availability of these options varies state by state and loan amounts can differ drastically as well.
While secured loans can have lower interest rates, it is important to realize that not all secured personal loans have lower interest rates compared to their unsecured counterparts. This is due to secured personal loans being a riskier loan type that is catered more towards those with credit problems.
Using Personal Loans Responsibly
While personal loans provide an excellent way to finance purchases and consolidate debt, they can also lead to financial hardship if you do not use them appropriately. This section is going to cover ways that you can use personal loans in a safe and reliable manner.
Build A Budget
One of the first things you should do before applying for a personal loan is to build a budget. Go ahead and tally up all of your existing expenses for the month. You can break it down into categories to make it easier. Common categories include credit cards, home loans, insurance, vehicle loans, utilities, groceries, recreational use, and savings. There are many free budget worksheets available online you can use to simplify the process.
Once you have all your expenses added up, you can proceed with adding up all your household income. The final step is to calculate the difference between your expenses and income. If you have a positive balance, then you are heading in the right direction. If your balance is negative, consider ways to curb your existing spending further until you have a positive cash flow each month.
Factor In Your Potential Payments
Once you have your budget built, it is important to factor in your proposed payments. The goal is to make sure you have a reliable stream of money left over each month. If your proposed loan payments are too high, you can opt for a longer loan term to help decrease this amount.
However, be aware that extending your loan term will cause the costs of your loan to increase over time. You want to try to achieve a balance between a manageable payment and as short of a loan term as possible to maximize your cost savings.
Consolidate Your Debts Effectively And Responsibly
One of the leading uses of personal loans is debt consolidation. They provide an effective way to help wipe out several high-interest credit card payments and roll them into one lower interest payments. However, there are ways for you to maximize the effectiveness of this strategy and to use it responsibly.
If you have made it to this point, then you should already have your monthly budget planned out with all your expenses. For an effective debt consolidation to work, you will need to gather up those credit card statements and compare them next to your budget. Look for the highest interest rate credit cards with the highest balances and sort them in order from highest interest to least.
Now that your statements are organized, go ahead and begin tallying up your credit card balances. Try to eliminate as many credit card balances as possible up to your approved loan amount.
Once you have the credit cards separated that you can eliminate, you can add up their total monthly payments and compare that to your loan payment amount. Generally, the goal is to achieve cost savings when comparing the two figures on a monthly basis. If you have a positive figure, this will get added to your monthly savings each month.
Now that you have paid off your credit cards, it is important to avoid using them at all cost. When using a personal loan for debt consolidation the goal is to increase your savings while paying off your debts faster than you normally would be able to. However, if you end up using those same cards again you will end up with more debt that you will have to juggle on a monthly basis.
As long as you stick to your original goal and budget personal loans provide a safe and effective way to reliably consolidate your debts. By using the strategies outlined in this section, you can help set yourself up for success with your debt consolidation plan.
Be Wary Of Additional Personal Loans
While using personal loans, it is important that you avoid taking out additional personal loans if possible. Many times people turn to personal loans to cover shortfalls in their budget that have been creeping up on a monthly basis. This is why keeping an accurate monthly budget and sticking to it is very important.
While a second personal loan may be beneficial in some circumstances, it is imperative that you carefully examine your budget to make sure you are still achieving a positive balance each month. By doing this, you can be sure that you are making an educated decision just as you did with your first personal loan.
Personal loans are an excellent financial product for a broad range of uses. They can be used to finance purchases, repair your car, pay for materials in a construction project, and even consolidate your debt. They also have an application process that is very simple and straightforward.
This is why many consumers turn to them when they are needed. Their flexibility and convenience make them an excellent choice. By following the guidelines in this article, you can be sure that you are making an informed decision regarding your personal loan. You will also have the knowledge necessary to make your application process go as smoothly as possible.