Bad credit loans are short-term fixes for individuals who want to borrow money with a poor credit history or bad credit score. Borrowers use these loans for financial emergencies, including job loss, debt consolidation, repairs, and medical bills.
Many lenders offer these loans to borrowers who have little or no time to repair their credit history. With that in mind, let’s take a close look at some of the most common questions people ask about bad credit loans to help you decide if it’s right for you.
1) Can I get approved if I have been declined for credit in the past?
Yes, you can. There are lending companies that offer loans to people who have bad credit. The only difference is that your interest rate will be higher compared to someone with a good credit score.
If a lender denies your loan, you should first ask them to give you the reason. You can reach out to them for an explanation or read through the adverse action notice to know what happened. You can also look at different aspects of your financial profile like lenders do to find red flags in your credit. These include:
- Examine your credit reports: Check your credit reports to find out your payment history, the kinds of credits you received, and much more. Review them to identify problems such as late payments that could have resulted in your loan application being declined.
- Fix the errors in your credit reports: In case you find errors in your report, contact the credit bureau that made the erroneous report. You should not be held responsible for the actions of fraudsters or computer errors: You have the right to get the mistakes fixed.
- Evaluating your debt and income: You might want to assess your debt-to-income (DTI) ratio to determine if you’ve adequate income to repay a loan. Be sure to ask your lender what they are expecting for your DTI ratio. Generally, a ratio lower than 36% is enough to boost your creditworthiness in the lenders’ eyes.
- Apply with a cosigner: If your loan application has been declined due to bad credit, try reapplying with a cosigner who has a good or excellent credit score. Doing this will reduce your chances of a lender denying you a personal loan and allow you to get a better interest rate.
- Build your credit score before reapplying: If you have a low credit score, try repairing or building your credit score and apply again.
2) What is a soft search?
Before issuing a bad credit loan, most lenders will often conduct what is referred to as a “quotation search” or a “soft search” as part of eligibility checks. This will leave a soft footprint on the borrower’s credit file instead of a hard footprint that a full credit application will leave.
A soft footprint doesn’t affect your credit score. It also allows you to shop around without worrying that you’ll affect your creditworthiness, which may be suitable for people with a poor credit history.
A soft search is what will help the lender decide whether to give you a loan or not. Many lenders complete a quotation search on all applications to make credit history for borrowers. Before funding a loan, they might complete a hard or full search and leave a footprint on the borrower’s credit file. In turn, other lenders will be able to see that the person made a full application, and this can affect your credit score.
3) Is it a good idea to take bad credit loans?
Bad credit loans are ideal for people who desperately need money but have a poor credit history. This is because most traditional lenders don’t offer credit to applicants with bad credit. These loans are ideal for individuals looking for finance, but other lenders have turned them down.
Bad credit loan lenders offer more flexibility regarding who they can give money. That means if other lenders have turned you down, you can still be successful and get a personal loan.
4) How long does it take to approve bad credit loans?
The application and approval process for bad credit loans depend on individual lenders. Different lenders have their criteria for approving these types of loans. When you apply for a bad credit personal loan online, the application process only takes a couple of minutes. You can also receive the money in your bank account within 15 minutes. However, this depends on your lender.
5) What are the requirements for a bad credit loan?
Most lenders will ask for your details, such as contact address and bank statements. They will need a history of self-employment or secure employment. If you are self-employed, lenders may ask for additional information on the performance of your business.
6) How much money can I borrow with bad credit?
Your lender will determine your loan limit depending on your creditworthiness and income. Essentially, high-qualified borrowers will get the largest limits. On the other hand, those with bad credit may receive close to the minimum loan limit that their lender offers.