By Catalin Constantin
There are many times in life when you may need a loan, that relief when you need the money fast. If you have a good credit score, the interest rates are lower, and there are plenty of loan offers to choose from. But the truth is you are not always prepared to get the loan with a good credit score.
Having a bad credit score means first of all not enjoying the best rates, which further may translate into higher overall costs. Some statistics reveal that one in 10 people have a very poor credit score, which is below 550.
While it may seem very difficult to find a personal loan in these conditions, you can make your way through with a little research. Here are six things you must know before taking a bad credit loan:
What is a bad credit score and how do you get it?
As mentioned before, a credit score under 550 is considered very poor, but the bad credit starts from under 580, the threshold under which one can state a credit score is poor.
But while the average national credit score is above 700, people with fair credit also (under 670) may still find it difficult to get approved for any type of loan they want.
Having a bad credit score comes from multiple reasons. One of them is failing to make the due credit agreements payments on time, choosing the wrong credit card, paying the minimum each month, or having no credit history whatsoever.
Research on loan options.
One thing to do if you have a bad credit score is to research the best loan options available to you in these conditions. This is extremely important because, if you apply for many loans in a short time, your credit score may be lowered even more. Also, the interest rates may increase if you don’t stick to just a loan option, and the chances of approval may decrease.
Who will give a bad credit loan?
Choosing the right lender is as important as choosing the most suitable loan option. Different lenders have different credit score requirements, and there even are best bad credit lenders. They will review your credit history and give you the best loans available on the market.
While these are the most desirable options when you have a bad credit score, note that there are even lenders that may not look at your credit score at all. Instead, they will charge considerably higher fees and interest rates.
The Annual Percentage Rate (APR).
Another very important thing to keep an eye on is the Annual Percentage Rate, or the ARP. It measures the total cost of any financing and is higher when it comes to bad credit borrowers.
The most competitive APRs are for clients who have a credit score of 700 and above. If you want to get a deeper understanding of the APR, the types of APR, and the pros and cons, we suggest you to read bestloansforbadcredit.com complete coverage of APR.
The cost of a bad credit loan.
Once you settled the terms and rates, you now have the total cost of the loan. You will have to be aware that the interest rate is higher than of the other credit scores. For example, the interest rate for a poor credit score compared to a good one is three to five times higher, and so it is the interest paid over the life of the loan.
This is added to the amount of money you borrowed using a personal loan. Bottom line, the difference in costs for having a bad credit score compared to a good one may sum up to even half of the initial loan.
Improve your credit score before applying.
The best way to avoid big costs and to enjoy the best loan options is to improve the credit score before applying. This is a slow process though, but if you have a review of your credit report, you may identify what you can improve before applying for a loan. Some ways of doing that is paying the bills on time and reducing the debts.