Need a loan, but bad credit is making it hard to get? Or not sure which offers are true or just out to get you to apply, send money for your “processing” and then reject your loan request? Let’s go over some of the things you need to know about bad credit loans. And how to avoid being taken advantage of by “fake” offers.
What are bad credit loans
Bad credit loans are multi-purpose loans. This means that you’re free to use the proceeds of your loan to finance an urgent personal or household requirement. In fact, this credit program can provide you with ample funds to finance a medical emergency, cover a huge financial obligation, pay off the tuition and other school fees of your children, support a much-needed home remodeling project, etc
Payday loans: These are loans tied to your paycheck. Usually they run for 2 weeks to a month during this time they must be paid back. Often times, bad credit loans and payday loans get lumped together. But bad credit personal loans are not tied to your paycheck. THEY do require that you have a job, and you have the ability to pay them back. So they will ask for your income.
Some things to remember about bad credit personal loans:
- Even though they approve low credit scores, it doesn’t mean that they will approve anyone! Some of our lenders work on the basis, if they can pay back the loan. We will finance them. But then, not everyone gets approved. In my experience, when they do turn down a client. Its because of one of these reasons:
- Their debt to income is way too high. How do you fix this? Pay down your debt. If you can’t pay it down, ask your lenders for credit line increases so it looks like you are using less credit than you are!
- They were asking for more money then the lender felt they could afford. How to fix it? Be realistic. Look at how much you make, how much debt you have and think like a lender. Will this person be able to pay off any new debt? And don’t think, well if I got this loan, I could pay off the others and get ahead. Most of the time, if you are currently behind, you are not a candidate for a loan. At least not a loan based on your own credit without a co-signer. You need to apply BEFORE you fall behind.
- Not enough credit history, lender didn’t feel like they had enough experience handling a loan, or a loan of this size. How to fix this – build your credit BEFORE you apply. Ask a friend or family member to add you as an authorized user to some of their older accounts.
- Read their application criteria carefully before you apply. Many of them will have their minimum credit score on the terms of service page. READ IT. IF they use a computer for the initial credit pull (and most due since they offer almost instant approvals) if their minimum credit score is a 600 and you have a 599, it will be an instant decline.
- These credit programs often come with much steeper rates of interest and fees. Because of the risk involved in providing loans to people with bad credit, you will find they will have higher interest rates and fees. When you speak with the lender. Ask them if there are any pre-payment penalty fees. Let them know you are working on your credit and expect to see your credit score improving A LOT over the next few years. Also ask them if they would be willing to review your loan in a year and possibly offer you a lower interest rate since your credit would be much improved.
- Offering collateral. Ask them if they would be willing to approve you / increase the loan amount / decrease the interest rate if you were able to provide them security such as a paid off car, jewelry, real estate, or money market accounts. Keep in mind if you default they can take these assets! But offering adequate security will turn a NO to a YES! What makes good collateral?
- Cars less than 10 years old
- Business equipment
- Boats / recreational equipment
- Secured bank accounts
- Jewelry with recent appraisal
- You can negotiate! If you feel the rate and fees are excessive you don’t have to take them. Call up the lender and lay out the reasons why they should lower their rates and fees. Make sure you have sound reasons and paperwork to back it up! Things I have my clients send me to get better rates:
- Most recent tax return
- 6 months bank statements
- letter of explanation for their credit
- recent appraisals for collateral (otherwise most lenders use blue book value or auction value)
- Use your bad credit loan to build your credit! Make sure your loan reports to at least 1 credit bureau so that you can use this loan to build up your credit and never have to settle for a bad credit loan again!
- Get a co-signer. If you get approved and the rate is just too high. And you have done all you can to prove that you are not a high risk borrower. Then its time to ask a family member or friend to co-sign.
- Go offline in your search. Look for a credit union to join. Credit unions will bend over backwards for their members and are known to offer small loans to high risk members
How to spot a FAKE bad credit loan offer
Not all issuers of bad credit loans are legitimate. Unfortunately with loans getting harder to get approved for. Many scam artist have made bad credit consumers their target audience. Why? Many bad credit consumers feel a bit desperate to get approved. And will jump at any opportunity to obtain financing.
Although it can be fairly easy to spot one of these fake lenders.
- Most banks don’t call you out of the blue and ask you if you are looking for a loan and they approve all kinds of credit. If you haven’t applied anywhere, how would they know? I do some writing for other lending sites and late in 2016 one of the sites I work with had a guy in CA calling from his CELL PHONE and PRETENDING to be on staff. We found out about it when people called looking for him and the loans they had been promised! We gave the info to the police but it was obvious they were not very interested in this guy. The police asked these questions:
- Did these people apply on our site for a loan – Answer: NO
- Where these people customers or how had they found out about your business: – Answer: They got a call from this fake guy
- How did these people find out about the loan – Answer: some guy called them saying he was with the company
- Did he call from your office number? Answer : No, it was a cell phone w/ bad reception
- Did we speak to him: YES! We called and told him we were calling the Police! He hung up and blocked our number
They got nowhere with the LA police dept. They posted a warning on the site that they would never call you offering a loan and after a few weeks the scammer moved on since anyone with any common sense went to the website and saw the big warning sign!
Dangling the carrot
A lot of scams can be easily spotted. They are often too good to be true. These lenders hold out the promise of a great loan, despite your credit or ability to repay. But below are a few things that tend to scream out “scam loan” that you should be aware of!
- Never send processing fees using a debit card, western union, or wire transfer. Once you send money using one of these methods, your money can’t be traced.
- Most bad credit lenders will reduce the amount of your financing to cover fees and such. So never send money unless you are 100% sure the lender is legit!
- Does it sound too good to be true? One of the people who got scammed asked for a legit loan thru one of their lenders. His score was below a 520! AND he had been out of work for a year and had only gotten back to work within the last month! And yet the loan he had been “approved” for was a $10,000 unsecured loan with an interest rate of 4.9%. The scammer told him he could get people with good credit 0% interest loans with no fees, while bad credit had to pay the processing fees and the 4.9% interest! He got scammed out of $500 which he sent the scammer via western union.
- Do your research! If you have never heard of the company, you can’t find them online, then don’t do business with them! The world HUGE and yes, you may not be able to find reviews on everyone. But even the smallest credit union has a website!
- Pick up the phone and call! If things seem a little “dodgy”. Call the main number on their site and make sure the “loan officer” works with them.
- Too much urgency. If they say you need to ACT now or the loan will not be available for you if you stop to do your research…. then move on! They want to get you moving without thinking. And even if they DON’T ask for money. They maybe stealing your identity! If the loan is only good for as long as they have you on the phone, you KNOW there is something wrong with that!
- Excessive fees: Do they need insurance payment fees, application fee, processing fee and 3 months security payment. Leave that loan alone! Yes I’ve seen plenty of banks that charge an application and processing fee. And its not unheard of to ask for a security payment. I start to shy away from banks that want an insurance fee. Basically they say this fee is to cover them if you default.
Having bad credit should never be the reason for you to settle for a “bad” bad credit loan. You have options. And in this article I’ve outlined a few things you can do to get approval and / or improve your rate.
If you honestly think that the lender is asking for way too much then, you have the choice to turn down the loan offer and to look for a more affordable loan.