7 Tips for Securing Bad Credit Loans
Introduction
So you are looking for a loan to meet an urgent or planned need and secure your bad credit loans, but your credit rating is getting in the way. You have come to the right place as 7 tips mentioned here might help you securing bad credit loans.
Lets face it, getting a loan with bad credit can be challenging as it not only limits the options available, but may also result in higher interest rates. The good news is, many reputable lenders may consider other factors besides credit score, for instance your income, debts, cash and credit history.
Even with the bad credit you want to get out of financial difficulty and need financial stability and assistance? Then you are at the right place, here we will discuss tips and strategies to get bad credit loans.
What is a Credit Score?
You might have heard the credit score several times but still wonder what it is? So before unfolding the strategies and tips we will explain to you what a credit score is. Basically it is a three digit number that tells your credit worthiness.
It is a standard tool used by the lenders before lending you a loan. As they need some assurance that you will be able to pay back or not.
In South Africa credit score ranges from 0 to 999, higher the score more is creditworthiness and lower chances of defaulting in payment.
What is Bad Credit?
As our main focus is bad credit loans so let’s discuss what bad credit is. Basically when a credit score is below a certain value it is considered bad credit. Poor credit score is below 670.
Bad credit makes it difficult for you and the lender to lend you money under feasible terms because it reduces the creditworthiness and the lender is in doubt whether the particular individual will be able to pay back or not.
But don’t lose hope there are many other options available for the individuals with poor credit health.
You can also read our article “Top priority: Loans For Low-Income In South Africa” to know further about challenges faced by people with limited income and poor credit.
P2P loans:
P2P loans also known as peer to peer loans in South Africa are becoming very popular currently. It is the best option for a borrower and a lender.
P2P platform provides financial assistance immediately to those with bad credit and small businesses than regular banks. The interest rates of P2P loans are comparatively lower than banks.
The P2P loans are also favorable for lenders as it gives higher return than other investments and reduces risk.RainFin is one of the largest P2P lenders in South Africa which offers personal, business and property loans. For further insight about alternate lending options read “Bad Credit? Micro Loans Can Help Now.”
Online lenders:
Online lenders include banks, p2p lenders, pay-day lenders, microfinance lenders, Fintech lenders and online-focused banks. While choosing a online lender following factors should be considered:
-
- Loan amount
-
- Interest rate
-
- Repayment terms
-
- Creditworthiness requirements
-
- Lenders reputation
-
- Customer reviews
Responsible attitude is very important in securing loans.Always compare the options and assess financial situation before applying for a loan.
Credit Unions:
If you are a member of a credit union and you have bad credit then no need to worry your problem is solved. Credit unions are the best sources for getting loans with poor credit.
The only requirement to get a loan from a credit union is to be a member and should have relations with other members of the union. Online lenders have a percentage of around 36% but credit unions only charge 18% annually this is the best advantage of credit unions.
How to Apply for a Loan with a Bad Credit Score 7 Tips
1. Understand Your Credit Score
It is very important to know your creditworthiness before applying for any loan so that you know where you stand and at what terms you will get your loan approval. You get a free credit report from Experian, TransUnion, Equifax and other agencies.
Thoroughly go through your report and highlight errors that are affecting your score. If you feel like any information is incorrect immediately contact your bank and sort it. These steps will improve your credit score as well as will have a positive impact on your loan application.
2. Look for Lenders Specialized in Bad Credit Loans
Many regular banks and lenders have strict policies for loan approval so for getting bad credit loans it’s important to look for a lender who is particularly working in this specific field.
There are many lenders in the market lending loans to people with bad credit because they understand the fact that a three digit number can’t sketch a person’s whole life and story.
Well they have different strategies to lend a loan to those who can’t get a regular loan. They look for your stable source of income and debt to income ratio.
You only need to put some effort and find a lender who has flexible terms and will be ready to approve a loan for you even with your bad credit.
3. Consider a Secured Loan
In bad credit loans, the best option for individuals is a secured loan. These loans require collateral such as a car or a home. Lenders demand collateral because this reduces the risk of not repaying, hence this leads to better terms between a lender and a borrower, especially low interest rates
You must be aware of the risks associated with a secured loan, if you fail to repay the loan the lender has the authority to seize your property which leads to loss of your asset.
Well you must opt for a secured loan if you are certain that you will pay back on time otherwise it’s not a good option you will end up losing your assets that in return make you go through more difficult times than you are currently facing.
Since secured loans and personal loans are often used for people with bad credit, you can also have a look at our article “Get Your Personal Loans With Bad Credit Now!”
4. Improve Your Credit Score
To secure a bad credit loan you need to improve your credit score. It may take time to improve your credit score but it will increase chances of loan approval under good terms and conditions. This can be done by paying your bills on time, reducing your debt score and avoiding applying for multiple new credit accounts.
Consider using other credit-building tools like Experian Boost. This tool allows you to upload your phone, utility and other service payments in your credit history, increasing your credit score.
5. Settle on the Best Terms
Terms and conditions of different lenders must be read by the borrower first before applying for any bad credit loans. You should consider the factors like the interest rates, origination fees, repayment terms and any additional charges with the loan. Compare the factors it will help you choose the loan that best suits your financial situation and minimizes the overall cost of borrowing.
6. Provide Evidence of Income and Stability
You must have evidence of a stable income and job before applying for a loan because these are the first things demanded by lenders.. Lenders have to make sure that you have the means to repay the loan. Keep all documents such as pay stubs, bank statements and employment contracts to show your financial stability. This information builds lenders confidence in your ability to meet your loan obligations.
7. Be Honest and Transparent
Honesty and transparency is a key element when applying for a bad credit loan. Everything should be crystal clear.whatever financial challenges you are facing that led to your bad credit do mention them to the lender. Lenders appreciate honesty and will work for you if they understand your situation. Being clear about your credit history allows lenders to assess your application more accurately and provide loan options that suit you best.
How to Improve Your Chances of Loan Approval
Getting a loan with bad credit can be challenging, there are some strategies that can be implemented to improve your chances of loan approval. Consider the following tips:
-
- Show your responsible financial behavior and pay your bills on time .
-
- Lower your debt to improve your debt-to-income ratio.
-
- Don’t apply for multiple new credit accounts, this can negatively impact your credit score.
-
- Maintain stable job and income to provide assurance to lenders.
-
- Better work with a credit counselor or financial advisor who can provide guidance on improving your creditworthiness.
What Are Alternatives to Loans When You Have Bad Credit?
Bad credit have created difficulty in securing loan, there are other options to consider:
Ask a Friend or Family Member for a Loan
Asking your friend and family member is difficult and you might feel hesitant asking for a favor. But in this difficult time it is the best option for you because they might lend you money at a low or zero interest rate and may not demand any collateral as an assurance and whenever your financial situation improves you can easily return money with a note of appreciation.
Explore Credit Cards
Second option for you is to explore credit cards designed for individuals with bad credit. It is to be noted that these cards may have higher interest rates, they can provide a source of funds for immediate expenses. Responsible use of a credit card can also help improve your credit score over time.
Seek Credit Counseling
If you’re facing a high amount of debt, consider seeking credit counseling from a certified nonprofit agency. Financial advisors can provide guidance on debt management and help you develop a plan to pay off your debts efficiently.
Frequently Asked Questions
What’s the easiest loan to get with bad credit?
The easiest loans to get with bad credit are Secured, co-signed and joint loans.A secured loan requires collateral like house, car and something similar to value of money.
Can you get a loan with a 500 credit score?
Yes you can but you need to have a stable source of income.
What is the minimum credit score for a loan?
Minimum credit score is between 720-750 to get approval for a loan.
What happens if you can’t pay your loan in South Africa?
If you won’t be able to pay your loan within 10 working days legal action will be taken against you.
Bottom Line
Securing bad credit loans in South Africa may require extra effort and research but it is not impossible. By understanding your credit score, exploring specialized lenders, considering secured loans, improving your credit and being transparent with lenders, you can increase your chances of loan approval.
Moreover, looking for other options like borrowing from friends or family, utilizing credit cards or seeking credit counseling can provide temporary financial relief. Remember to carefully read loan terms and conditions, compare offers and choose the option that best suits your needs and financial situation. With responsible financial habits, you can overcome the challenges of bad credit and secure the financial assistance you need.