Bad Credit Loans and Financial Health

Bad Credit Loans and Financial Health (photo credit: PR)
Bad Credit Loans and Financial Health
(photo credit: PR)
When a person needs money to fund an emergency car repair, medical expense or pay for school, it is likely that they will need to get the cash fast. Fortunately, personal loans are offered by lenders to help individuals who may require some extra cash.
A personal loan is unsecured, which means that a person does not have to put down any collateral in order to qualify. However, a person's credit score is carefully scrutinized to determine the interest rate of a loan. Four quality ranges determine how well a person's credit looks. The four ranges are shown below:
How Does My Credit Score Rate?

- Excellent (720-850)
- Good (690-719)
- Average (630-689)
- Poor (350-629)
Excellent and good credit scores will reduce the interest rate of a personal loan received by an individual. Average and poor credit scores will result in a person paying a higher rate. These bad credit loans are much more risky for a lender due to the fact that a person has not shown that they are as likely to pay back the loan as someone with a higher credit score.
Typically, a bad credit score is one that falls below the 630 point threshold. However, there is good news for borrowers who are stuck in this situation! Some lenders are willing to give these individuals a chance and lend them money. These online lenders have a business model that allows them to be a little more flexible than a bank might be. Both parties benefit as the lender receives a little bit more money from a higher interest rate and a borrower receives cash for an unexpected emergency.

What Rate Can A Person Expect?

The Estimated Annual Percentage Rate (APR) that people receive who are applying for personal loans will be determined by the credit score tier that they fall under. Here are some estimates of the following four ratings:
- Excellent (720-850) 10-11 percent APR
- Good (690-719) 13-15 percent APR
- Average (630-689) 18-21 percent APR
- Poor (350-629) 27-29 percent APR

How To Compare Bad Credit Loans

While bad credit loans do require higher percentage rates, there are ways to compare them. If a lender reports the repayments of an individual to at least one of the three main credit bureaus, Equifax, Experian and TransUnion, this will help improve the credit score of a person, but it does take some time.
Some lenders offer the option of reducing a high rate when an individual shows that they can demonstrate financial responsibility by making repayments on time. When applying for a personal loan that does carry a high rate, it's advisable for an individual to check if this option.

Steps Ahead For Future Financial Health

Typically, personal loans are better than credit cards for paying off other debt or handling an unexpected emergency. If a person doesn't have a budget, they should consider using one and starting a small savings account for any emergencies that may arise. Also, keeping a high credit score should always be a goal or building one back up to a higher level so that opportunities can be seized with a lower interest rate in the future.