Money won’t buy you happiness but it can make you pretty comfortable in misery. Nonetheless, people unwittingly find themselves in financial troubles even though they’ve dotted all the ‘i’ and crossed all the ‘Ts’ of personal finance principles. However, many people find it hard to get back on the track to financial stability once they’ve been bedeviled by financial troubles.
Many people often find out that their financial troubles has a negative effect in their credit score and they often feel there’s little they can do to restore their creditworthiness. Nonetheless, you need not lose hope if your creditworthiness is less than perfect. This article seeks to provide insight into three realities you must accept if you are working on getting a loan with bad credit.
1. Accept the fact you aren’t a prime candidate for unsecured loans
The first step towards getting our finances in order after you gone under is to understand that you are not a prime candidate for loans. Banks are in the business of making money while taking minimal risks; and your poor credit doesn’t exactly portray you as a creditworthy borrower. Hence, banks will not be very open to the idea of giving you an unsecured loan because your bad credit suggests that the chances that you’ll default are high.
2. Understand that you’ll pay more in Interest rates and fees
People with less than stellar credit automatically tend to attract higher interest rates than borrowers who have excellent credit scores. In essence, you should live with the expectation that you’ll pay more in interest rates and fees. People with poor credit scores will be required to pay higher interest rates; in fact, you can expect the interest rates to be as high as 1-5% of the loan amount.
More so, you should expect to pay higher origination costs and higher closing costs (sometimes, as much as .5% of the total loan amount).However, you should note that the interest rates for unsecured loans might be much more higher than the interest rates on secured loans. Hence, if you are opting for an unsecured loan, you should have a solid repayment plan; otherwise, the high interest rate might make it harder for you to get back on the track to financial stability.
3. You must become a Jedi knight on knowing the specifics of loan terms
After you have identified the kind of loans available to you, you’ll need to get busy to understand the specifics of the loan terms. If you expect the loan to have a fixed interest, you should make sure that you are on the same page with the lender so that you are not faced with the unexpected surprise of a variable interest rate – the reverse also holds true.
More so, you need to explore your options before signing your name on the dotted lines. You might get the loan as a lump sum to cover major expenses or you might opt for a revolving line of credit to tide you over until something better comes along. No two people have exact financial needs; hence, a one-size-fits-all financial solution is hard to come by. You need to an objective look at your financial circumstances and get a loan that best suit your needs. Sometimes, a revolving line of credit might be better than a lump sum loan offer.
Final words
Understanding and embracing the realities of your unique position with a bad credit score could help you trim your expectations when searching for loans. For one, you won’t be wasting your time to send out loan applications that might never be approved. Secondly, sending out targeted loan applications best suited to your circumstances shows the lenders that you are on a path to financial responsibility and they’ll be more inclined to approve your loan request. Thirdly, the sooner you are able obtain the loan, the sooner you are able to ease the financial pressures so that you can start rebuilding your credit score.
