There are a lot of important instant decisions to consider when you begin the process of taking out a loan, no matter what kind of loan you choose to pursue. From settling on the length of your term from how to calculate the interest on your loan, it can seem like an overwhelming amount of decisions to consider. Here’s how to get started, and a few things to be thinking about:
Ask Yourself the Important Questions Now and Know What You’re Getting Yourself Into!
This seems like a step you could easily skip over. You’re an adult. You know what taking on a loan entails. But nevertheless, it’s important to know your individual plan of action for all those little instant decisions that you’re about to make. The more you’re ready to handle and the better informed you are, the more successful your loan will be. Ask yourself important questions such as…
- “How much money do I need to borrow?”
- “What kind of interest rate can I handle?”
- “Would I prefer lower, more frequent payments with a higher interest rate, or bigger/more sporadic payments with a low interest rate for a longer period of time?”
- “Do I want a short-term or long-term loan?”
- “How soon can I realistically start paying off my loan? Can I keep those payments up consistently; slow and steady, or in bigger, less often installments?”
- “What deadline can I realistically finish paying off my loan by? Can I stick to that deadline?”
- “Do I have any outstanding debts to worry about? Should I consolidate those into one loan?”
- “Is my source of income reliable enough to make regular payments, or should I find a loan that’s better suited to a commission-based job?”
It’s crucial to consider all these questions in order to make those quick instant decisions when it comes time to take out your loan. For example, if you already have several loans that you’re paying off at varying interest rates, and you were to calculate the interest on your loans if you were to consolidate them, you might find that it’d be in your best interest to consolidate those loans into one simple, lower-interest loan. If you’re juggling multiple high-interest loans, consolidating into a single lower-interest loan would help you manage your payments into one consistent bill and potentially score you a better interest rate. Something to consider, if your situation involves multiple loans. (Especially a smart move for students or recent graduates.)
What Kind of Interest Rate is Right For You? What Length of Term Works Best on Your Loan?
Research your options for various interest rates. Federal loans will often have lower interest rates than private loans, but it depends on what you qualify for. You can calculate the interest on different types of loans from different lenders, and choose the option that’s best for you. Take into consideration the decision you want to make on the length of your loan term, because the interest you pay will be greatly affected by the length of your loan term, the kind of loan you choose, and a list of other factors that vary based on the lender.
The length of your term will affect the number of payments you make in that period of time, the amount that you pay, and the amount of interest you’ll pay with each installment. It’ll also affect the compounding interest and your loan’s APR/APY. Asking yourself how soon you can start paying off the loan and how quickly you’re able to pay it off will be the first step towards making that particular instant decision on your bad credit loans.
The terms of your loan are typically broken down into two general options: long-term and short-term.
Long-Term vs. Short-Term Loans: What You Need to Know Before You Decide
- Typically offer lower interest rates
- Often have more requirements to meet, depending on the type of loan
- Characterized by a longer term (often closer to a year or more)
- You’ll pay your interest rate longer (more chances for your interest to compound if you don’t pay off the loan consistently)
- Offer lower payments
- Typically feature regular, frequent payments (weekly, monthly, or bi-monthly)
- You’re bound in a contract for a longer period of time, so there are more chances to miss a payment and get buried in the loan
- Has potential to greatly help or hurt your credit score, depending on how careful you are to pay each installment on time or early
- Can feature higher interest rates, but you’ll pay them for a shorter period of time
- Often have fewer requirements to meet, so it’s ideal for lenders with bad credit scores
- Characterized by a shorter term (often less than a year, or even a couple of months)
- You’ll often have the chance to pay off your loan in one or two lump-sum payments
- A bigger payment, but you’ll only have to pay it a handful of times
- Less risk of your interest rate compounding and overwhelming you
- Fewer payments to worry about missing or being late on
- Potential to pay it off quickly and forget about it
- Won’t often ask for your credit score, or affect it; the short term means it’s less of a factor
There’s no “good” or “bad” loan. There’s only the loan that’s right for you, and one that will cause you more stress than it’s worth. It all just depends on your individual needs and what you’re looking to get out of your loan. Do your research and do your math: calculate the interest on your loan, figure out what your financial situation will be like in a week, a month, a year. A little planning will help you find the loan that’s perfect for you.
Bad Credit Loans for Borrowers with Bad Credit Scores Aren’t “Bad” Loans
These days, a bad credit score is considered to be anything under 600. That might seem harsh, but given that your credit score will look different depending on the bureau you request it from (since they judge credit on different scales and factor in different things when calculating that score) it’s a pretty common assessment. According to a recent study by the Corporation for Enterprise Development, 56% of Americans have below average credit scores, and have struggled to get approved for loans due to their bad credit scores.
If that sounds like you, then a small bad credit loan is definitely the best option for you. There are different types of loans that are best equipped to handle your needs when you have a bad credit score, and there are even some government-subsidized loans that you might qualify for.
Many borrowers find other alternatives to supply themselves with a small bad credit loan in those instances when they need a short-term loan for an immediate cash boost. Some use title loans, payday loans, or take out smaller, shorter-term loans to suit their needs. You can easily use equity that you already own to finance a bad credit loan, rather than having to rely on your credit score or financial history. This also works well for borrowers with good credit who’ve ever had to file for bankruptcy in the past.
Knowing what lenders look for in a borrower is critical to understanding what you’ll qualify for, and the kinds of decisions you’ll be asked to make during the lifetime of your loan.
What Lenders Are Looking For In A Potential Borrower (You!)
Lenders want to know if you’re a good investment. They’ll need to know that you’re responsible; that you’ll return their money successfully, on time, and without fuss. Unfortunately for many bad credit borrowers, the signifying factor that equals “responsible” to most lenders is your credit score. Who knew that four-digit number was so powerful, right?
Most lenders look at your credit score, your ability to handle commitments, and your collateral equity. Let’s break that down a bit.
If you have a good credit score, it’s an instant way for lenders to look at you and think, “Oh, there’s someone who’s consistently managed their money well, paid bills on time, paid off debts, and handled a credit card well.” And maybe you have done all that, but an unexpected expense or missed payment tanked your credit score, and now no lender wants to come near you with a ten-foot pole.
Don’t stress, bad credit borrowers. That’s why small bad credit loans exist, and are such a popular form of lending. You’re in the majority of America if you have a bad credit score, so it’s nothing to worry about. There are ways around your credit score making or breaking your loan, like we mentioned before. Your collateral equity is often the smartest and safest solution. We’ll elaborate on that in a minute.
In the minds of lenders, your credit score is one way to gauge your ability to handle financial commitments responsibly. But as you know, that’s not always a comprehensive test of your financial worth! You can’t judge everything by one number. So if you have a bad credit score, a lender might look at your other past financial commitments.
Have you paid off loans successfully in the past? If you’ve ever had a long-term loan before, that can work in your favor since you managed payments over a longer period of time, and held down that longer kind of financial commitment. Have you owned (and paid) your credit card for a long time? Again- this is another sort of financial commitment that will reflect well on you if you’ve managed it well over a long period of time.
Whatever financial commitment you’ve handled well over any length of time can show a lender that you’re able to manage a commitment to a loan, and they’ll be more likely to approve you. Again- if nothing comes to mind to positively showcase your past commitments- don’t worry… it’s not the end of the world, there are great types of small bad credit loans to help get one of those great financial commitments under your belt.
If you own anything of significant value, it can be counted as a form of collateral to use when you need a small bad credit loan. These collateral based loans will completely forego the need for a credit check or financial history check, so you can relax. Borrowers can use the equity on their cars, their homes, their 401K’s, or even their major appliances to secure a title loan, which is a collateral-based loan that uses equity value to finance a small bad credit loan.
This is a great option if you need a short-term loan with a bigger cash payout up front, and you’re prepared to pay it off shortly afterwards. The interest rates can vary depending on the lender, so double-check your options before committing to a loan and be sure to calculate the interest on a title loan to ensure it’s best for you. The nice thing about collateral-based title loans is that you don’t actually have to part with the thing you’re used the equity on. It’s not like you’re selling the collateral; you’re just loaning out the title as a form of collateral in order to secure the loan without a credit check.
Using collateral is just a third way to show a lender that you’re a good investment, and that you’re responsible enough to handle their loan successfully and without a hitch. They’ll feel confident giving you a loan once you show them that you’re confident that you can pay it off once you’re back on your feet. Work with your lender to agree upon those instant decisions that you’ve already considered, and they’ll see that you know what you’re talking about!
Make Decisions About Your Small Bad Credit Loans Before You Apply
Taking the time to weigh your options and shop around for better deals and lower interest rates may slow down the day that you finally receive your funds, but you’ll benefit from it in the long run. A better loan means a less stressful repayment period, and bouncing back faster. Ask yourself the questions that matter first, so that when you’re talking with a lender, you won’t have to make those instant decisions uninformed and panicked.
Know your stuff, determine what kind of loan is right for you and what length of term is best for your situation, and learn to calculate the interest on your loan so you’re prepared for your payments. Being prepared will make securing a small bad credit loan a breeze; so start your prep-work now, then apply for your loan with confidence.