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Getting a Loan With Bad Credit - Complete Tutorial

Many people with bad credit assume that they are resigned to renting for the rest of their lives. Without looking any further, that may very well seem like the case, but, for some, that’s simply not true. There are a number of programs out there, sponsored by both the government and by financial institutions, that make it possible for those with poor credit or no credit to own their own homes. Just because you may have made some mistakes in life and harmed your credit rating, that doesn’t mean you can’t bounce back. There are a number of options available that will help you invest in real estate and simultaneously allow you to rebuild a better credit rating.

Bad Credit Loans & Credit Union Loans

While anyone can apply for these types of loans, they’re specifically intended for those with bad credit. As such, this means you’ll be paying a higher interest rate, so this might be best reserved as a last option. While this will allow for a borrower to get approved more easily than traditional loans, it also means there’s a lower limit as to how much can be borrowed.

Credit Union

A better option than the bad credit loan mentioned above, even those with poor credit might want to consider a credit union first. Of course, you will need to apply to be a member of the credit union first, but, once accepted, getting approved for a loan is usually easier than with commercial banks. The key here is in the fact that credit unions on non-profit organizations and can, therefore, offer services, such as mortgage loans, at cheaper rates. On the downside, your credit score may restrict how much you would be able to borrow.

Peer To Peer Lending

Getting a mortgage through a peer to peer site, like Lending Tree, is also an option for those with poor credit. There are more than a few sites that offer this service now, as the concept has caught on in recent years. Instead of borrowing from commercial banks, the money is borrowed from a private lender. While credit scores are still considered in determining who will lend the money, it is easier to get approved. Unlike traditional mortgages, however, these debts are unsecured, so individuals should be aware of that, before borrowing.

FHA Loan For Poor Credit

These mortgages are specifically designed for those with poor credit and many commercial banks and credit unions offer FHA programs. These are government-insured loan services, so the banks feel confident that they’ll get their money back in the event that you default on your payments. Ray Brousseau, the executive vice president of mortgage lending for Carrington Mortgage Services, says there’s a big demand for mortgage services for those with lower credit scores. He predicts this is market banks will look to exploit in the future, as poor credit scores continue to escalate.

Qualify for a Low Credit Mortgage

Slightly different than poor credit, this option is for those without the credit history to establish a reliable pattern. Lenders like Fannie Mae or Freddie Mac fall into this category and a downside to this option is that applications are largely processed by an automated system. In the event that it’s rejected, you can ask that a human representative looks at the reasons for the rejection to determine if an exception can be made.

Secured Loan If You Have Collateral

This is an option for those that may already own valuable property, other real estate or something else that can be offered as collateral. Unfortunately, this may also mean a longer repayment schedule, but having collateral does make it easier to get approval.

Payday Loans

Payday loans are the first option for those with bad credit for various reasons. The first reason is that with a job the applicant can receive a loan that is contingent upon the next payday. In this way, the applicant has access to funds in times of need and do not have to wait until the next payday to pay bills or any other emergency that is calling for the funds. Although a payday loan is not used for long-term needs, they are designed for the short-term needs of the consumer. Traditional payday loans have different interest rates as there are many institutions that offer payday loans. There are many storefronts that offer payday loans. All that is needed for the consumer is to provide proof of income and then have an active checking account that the payday loan institution can then place a check against the account in the event the consumer defaults upon paying the payday loan back. They are called payday loans because they are designed to be paid back on the next payday. Whether weekly or bi-weekly, the loan is designed for immediate satisfaction.

Online Short-Term Loans

There are a few more facts about applying for a loan when you have bad credit that most consumers may not be aware of are the online short-term lenders. When looking for loans for people with bad credit, there are many loan agencies that will link the applicant up with a host of online lenders who will then go about the verification process with the applicant. There are lenders who require that the applicant has continual employment for the past year or sometimes six months. The point that they are looking for is employment that can pay back the loan. These type of loans are usually set up to be paid for by direct debit upon the applicant’s checking account where the direct deposit is made on the payday of the applicant. This is a means of making sure the funds are available to be paid upon the applicant receiving the paycheck. Online lenders usually have high-interest rates and this is the price that is paid when the applicant has bad credit.

Secured Loans

Loans for people with bad credit are secured when the applicant has personal property that can be used for collateral. In this way, many facts about applying for a loan when you have bad credit comes to the surface. Personal property is used in the event the applicant defaults on the terms of the loans. Most traditional banks have tight regulations regarding secured loans and some have ceased issuing them altogether. But there are a few banks that still have secured loans and the applicant with less than perfect credit may have to use this form or lending to secure the requested capital when in need of funding for any purpose.

Title Loans

A title loan is another option that many turn to in the event their credit is less than perfect when securing a loan. A title can vary from time to item. In other words, if the applicant has a home that is paid for and the title in possession then the title to the home can be used as collateral for a loan. This is usually the case when the applicant has less than perfect credit. Automobile titles are used for collateral as well. This is the frequent option for many when seeking a title loan. Title loans are very simple in their presentation because the rules are rather simple. If the loan is paid back according to the terms of the institution then the applicant receives the title for the home or the automobile upon completion. In the event the conditions of the labor are not honored then the automobile or the home is then seized and taken possession. Because these are the rules, most borrowers honor the terms of the agreement and pay the money back. When credit is bad or considered bad, these are the choices that are left for the consumer in the financial markets today.

Automobile Loans From Credit Unions

Because the terms of financing from a credit union are less fierce than a traditional bank, those with bad credit or less than perfect often find themselves reaching out to a credit union in the event an automobile loan is needed. Because the credit union is a non-profit organization whose members make up the stakeholder base, there are favorable terms for receiving a loan than a traditional bank that will often deny the applicant. Credit unions are more attractive than banks for many reasons and when the credit score is bad, then a bank is often the last place the applicant may turn to. Loans given by credit unions have favorable terms of repayment and less stringent rules for acceptance. The usual requirements hold true for credit unions that make the application process easier for the applicant.

Co-Signature Loans

Another aspect of receiving a loan is the co-signature loans that are often required when the applicant has less than perfect credit and less than desirable income to assure the financial institution that there will be no problems repaying the terms of the loan. Often times this can be a sibling, a spouse, or a parent to help the applicant apply for a loan by pledging their own financial stability in the event the applicant default on the terms of the loan. Most times this will add an extra onus on the borrower to honor the terms of the agreement by making the payments on time. Most often, the income of the co-borrower will be sufficient to push the application through for the primary borrower to receive funding at the moment the funds are requested. Having a co-signer is usually thought of when car shopping or home shopping, but the rules apply when looking for a loan as well.

Pawnshop Loans

A very often overlooked form of funding for those with less than perfect credit is pawn shop loans. These type of loans are made against the collectibles of the application and they are meant for short-term purposes and not long-term needs. The applicant has the onus to repay the money at the agreed upon date or lose the property that was pledged as collateral to receive the loan.

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