This question is a common one among all the inquiries we process daily. At least half of the requests of aid we receive everyday have to do with bad credit problems. People seeking finance find it very hard to obtain financing with bad credit. Sometimes it is so hard that people think it is actually impossible to get finance with bad credit. Though it is possible to obtain finance with a tainted credit report, there are some facts that you should know:
What Is Bad Credit?
Any credit score reported by credit bureaus that is lower than 600 implies bad credit. Of course, there is a wide spectrum; it is not the same to apply for a loan with a 600 credit score than with 450. Nevertheless if your credit score is below 600 you need to understand that you need to expect, if approved, not so advantageous terms as you might get if you can show a good credit score and history.
Loan Types And Chances To Qualify
When it comes to loan approval, the implications of bad credit differ from one type of loan to the other. Generally speaking, unsecured loans are more susceptible to bad credit because there is a higher risk of default and the lender endangers the investment significantly more. Therefore, personal unsecured loans are harder to qualify for if you have bad credit and you will need to reduce the risk in order to boost your chances of approval.
Home equity loans and lines of credit, home mortgage loans and those loans that are subsidized by the government or non-profit institutions are easier to qualify for because there are external securities protecting the lenders’ investments (the asset or a third party that guarantees repayment).
Collateral
One way of reducing the risk is offering an asset as collateral for the loan. Collateral does not necessarily imply a real estate property. Cars, vans and other motor vehicles can be used as collateral for a personal loan too. Since the asset guarantees repayment, the risk associated with the transaction is lower and thus, the lender does not have to be so harsh with the requirements needed to get approved.
Beware though, because the asset can be lost to repossession if you fail to repay the money owed. Remember that using an asset as collateral attaches the asset to the debt and in case of default; it can be forced-sold to repay the debt. This legal process called repossession has also serious implications on your credit score and history.
Down Payment
As regards to car purchases or home purchases, you can boost your chances of approval if the loan requested does not match the 100% of the value of the car or house but a smaller portion. Being able to put money down to purchase a property implies for the lender that you have savings capacity and that you will be able to repay the loan too. This fact improves your chances of approval a great deal.
Co-Signer
Finally, applying with the aid of a co-signer with a higher credit score and an unstained credit history can also improve your chances of approval. In the event of default, the co-signer has to repay the loan as if he where the taker. Otherwise, the co-signer can be found liable too and can be legally forced to repay the loan, if necessary, with his assets.
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