We all know that individuals with bad credit generally find it difficult to access loans. Many lenders view it as a high risk to give credit to individuals who do not have a good credit score.
However, according to a licensed money lender review, there are still some particular types of loans that can be accessed by those who have bad credit. These are described below.
Unsecured loans for borrowers with bad credit
There are some lenders who issue unsecured loans specifically to borrowers who have a poor credit rating. However, these loans tend to have stricter rules and regulations when compared to other types of loans. The borrower will also have to contend with a much higher interest rate on this type of loan because the lenders consider the risk to be much higher, and therefore they charge a higher rate of interest than what they would normally charge on other types of loans. This loan is unsecured. Therefore, it is also ideal for borrowers with bad credit who do not have any assets to put up as collateral.
Loans from family and friends
Borrowers with a poor credit rating can also choose to approach their family members or close friends to get a loan. It should be noted that this should be done in a very organized manner so as to avoid the possibility of conflict. Borrowing money from family or friends generally comes with the high possibility of default. However, in cases where the borrower is careful to pay back the loan on time, this type of loan tends to be very convenient because there is no extensive paperwork or documentation required.
Loans against assets
This is a type of loan that can be accessed by people who have bad credit but who have assets that can be used as collateral. Many lenders will approve a loan amount based on the net market value of the asset. However, the borrower will not be lent an amount that is equivalent to the full value of the asset. Depending on the lender, the loan figure will be between 30% and 80% of the asset value. This type of loan is easier to access by borrowers with bad credit because lenders are more certain of getting back their funds once they have the collateral. Some examples of collateral that can be used to get this type of loan are cars, boats, caravans, and even machinery.
The above loans are good alternatives for borrowers who have a bad credit rating. However, a good long-term solution for this category of borrowers is for them to seek to improve their credit rating so that they can access funds more easily in the future. Some of the ways in which borrowers can improve their credit rating are given below.
Pay off the monthly credit card debt in full.
Borrowers who pay their monthly credit card debt in full will have a better credit score than those who only pay the minimum given by the lender. This is because the amount owed will be fully paid off on a monthly basis, hence avoiding any accumulation of debt from interest or late payment penalties. This will result in a favorable credit score.
Consolidation of debts is another way of getting a better credit score. Having too many debts with different lenders makes it difficult for borrowers to keep track of all the loans, and this usually leads to defaulting, which lowers their credit rating. When all debts are consolidated into one, it is much easier to track the loan and ensure that all payments are made on time. This will result in a better credit rating.
Have lower credit card limits.
Lower credit card limits are easier to manage and to pay off in full. When applying for a credit card, borrowers should apply for a limit that they can afford to pay on a monthly basis. This will avoid any accumulation of debt on the card and result in a good credit score.
Avoid applying for too many loans.
This is another way in which borrowers can improve their credit score. Having too many loans causes confusion, which could result in defaulting on one or more of the loans. It is therefore important to limit the number of loans so that it is easier to budget for all the payments as they fall due.
Ensure that all monthly payments are made on time.
In order to get a better credit score, borrowers should ensure that monthly bills such as rent or mortgages are paid on time. This will improve their credit rating because there will be no amounts in arrears at the end of each month.
In conclusion, borrowers who have bad credit will still have access to the above types of loans. However, it will be more ideal for them to strive towards improving their credit score so as to get more opportunities for credit in the long run.