Basics of a Bad Credit Loan

If you are thinking about getting a bad credit loan, do not feel like the Lone Ranger. With our current economic situation there are millions of consumers whose credit has been severely damaged by the economic downturn. You probably know several people in your same situation. Millions of people are in the same boat as you! Take heart in the fact that a poor credit history is not always your fault. Loss of a job or an adjustable rate mortgage that rises faster than expected or increasing credit card rates are not your fault it is just a part of the current economic downturn.

Getting loans for people with bad credit requires some preparation. When you shop around for the best bad credit loans, remember to consider all of your offers carefully. It is getting harder to get loans for the normal source banks and other traditional loan sources. There are lenders specializing in giving loans to people with bad credit history.

Your credit history will be pulled when you apply for any loan. Your loan history will be used to help the lender decide if you are a good loan risk.  If your loan history is good, then you will be offered the best rate and terms on your loan. If your history is not good, you will either be denied or offered a loan with a higher rate and require of a bigger down payment.  Your interest rate is a direct response to risk. The larger down payment will decrease your loan to value ratio for the loan.  This also lowers the lender’s risk and possibly your interest rate.  You can also expect to pay higher processing fees.

If you have poor credit, the best way to improve your chances of getting a loan is to get a secured loan. A secured loan is loan that has some object pledged as collateral.  A great example of a secured loan is a car loan. Should you default on the loan, the lender has something they can take back and sell to recover their money. A classic example of an unsecured loan is a credit card. They are secured by nothing other than the fact you have a job and have promised to pay. This is why credit card rates are ridiculously high when compared to secured loans. At the risk of sounding like a broken record, your rate is tied to the lender’s risk. A high risk means a high rate.

If you have poor credit, you are in Poor Credit Prison! Everything you buy on terms is going to cost you more because of higher interest rates and processing fees.  This means you have less disposable income to spend on your family and your quality of life. When you have to get a bad credit loan, the best thing you can do is to MAKE THE PAYMENTS ON TIME!  This is a Golden opportunity to immediately start improving your credit score and help you get out of Poor Credit Prison.  You should realize that you are not stuck in this loan forever. After 18-24 months of making your payments on time, you can go back to your lender and ask to refinance at a lower rate/payment. Why would your lender lower your rate?  Because your credit score should have improved with this period of good payment history.  With an improved score you may find that lenders who denied you previously, are now willing to do business with you on a refinance.

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