The mix of bad credit ratings and personal loans seems to be a bad one. After all, having a low rating usually means have poor loan terms, making the pressure of repaying the debt even greater. But in fact, getting personal loans with bad credit scores can be a very sound move.
The advantage is not always obvious, with the act of taking on a new debt despite the pressure of existing ones seeming to be a step backwards. But the extra cash that is secured can play a key role in alleviating the pressure. The only trick is how to get approval with poor credit scores on a loan deal that is affordable.
There are some steps that can help to secure more competitive terms on the loan. And since affordability is the key issue for lenders, the likelihood of getting the green light is much greater. But the advantages of getting a personal loan make even modest compromises worthwhile.
Understanding What Bad Credit Really Means
Perhaps the most important thing for any hopefully applicant is to understand their position, and what a bad credit rating actually means. That way, seeking a personal loan with bad credit becomes a more realistic task.
Bad credit refers to the credit score that a person has based on their credit history. If any loans were defaulted upon, or any repayments missed, then it is added to the credit report and used to calculate how big a risk that person is to a lender.
Lenders are willing to grant approval with poor credit scores but the terms are definitely affected. For example, the interest rate charged on a personal loan will be higher for a bad credit borrower than it would be for an applicant with an excellent credit score.
How Loans Help Alleviate Financial Woes
Of course, there is no point in seeking a personal loan with bad credit at all if it fails to make a positive impact on your situation. But a carefully selected loan can make a real difference. If the terms are good, then extra cash can become available.
For example, if the funds from a new loan are used to clear some or all of your existing debts, then its good terms can ensure a more manageable repayment schedule. Securing approval with poor credit scores on a $20,000 loan can be the impetus to clearing existing credit card debt and one or two outstanding loan balances.