Low Credit Score Loans - How can I get access to them?
With the economic crunch, the subprime crisis and the increasing number of people getting low credit scores, lenders have come up with alternatives
that will allow low credit score holders to get access to loans they normally wouldn’t be able to qualify for. There are several types of
low credit score loans available and different ways of finding one.
Consider your options depending on your need. Determine what you need the money for, and how you will repay it.
Find a lender. There are several ways of doing this:
1. Start with the bank you currently have your bank account with. Because you already have a history with the bank, you have a better
chance of getting your loan application approved than if you were to apply with a new lender.
2. Talk to your credit card company.
3. Check the newspapers for advertisements by lending companies.
4. Find a low credit score lender online. The internet is full of websites and ads for low credit score loans. Do a Google or Yahoo search, then review the offerings in your area.
5. Look for a credit union near you.
Compare the payment terms and interest rates. Review the different low credit score loans from the different lenders. Compare repayment terms,
interest rates, and finance charges.
Discuss arrangements with the lender. Discuss your financial situation with the lender, and work with him to get a loan that has payment terms that you can afford to pay.
Put together the papers and other documentation you need for your loan application. Each type of low credit score loan has a different set of requirements.
Make sure all the required papers are there.
Get a co-signer. A family member or relative with a good credit standing who agrees to co-sign your loan for you increases your chances of being approved.
Your co-signer becomes responsible for paying the loan in case you can’t or don’t, and his high credit score will help in your being able to get a lower interest rate.
What are the different kinds of low credit score loans?
Unsecured Loan. An unsecured loan is a low credit score loan that has zero security for the lending company because there is no collateral against the loan.
One example of an unsecured loan is a cash advance loan – also called a payday loan – where you issue a post-dated check and are given 15 or 30 days to pay your loan in full. Cash advance loans are short term loans and you will have to pay a one-time fee, called a finance charge.
Secured Loan. A secured loan is one where you put up an asset as collateral against the loan. There are several types of secured low credit score loans:
Adjustable rate mortgage (ARM) loan – ARM loans have a fixed interest rate for the first 2 or 3 years. This type of loan is made by borrowers who want to buy a home while rebuilding or repairing their credit record. The borrower takes advantage of the lower fixed rate interest for the first few years, then refinances the mortgage – hopefully at a better interest rate – before the floating interest period starts.
A fixed rate home equity loan – This loan, which is usually a second mortgage, allows the borrower to get a lump sum in exchange for putting his home as collateral. The loan amount is based on the equity of the home and the borrower pays a fixed interest for the entire duration of the loan. The interest that you paid is tax deductible. Borrowers who need to pay off a single big debt or expense, or several smaller debts such as multiple credit card expenses use this kind of loan.
A home equity line of credit (HELOC) – The HELOC loan is also a second mortgage loan with a set term that uses the borrower’s home as collateral. The difference is that the loan has a variable interest rate, which depends on the amount borrowed and bank’s interest rates at the time the money was taken. The loan allows the borrower to get money up to a pre-specified limit, pay it back fully or partially, and then borrow again. The interest paid can be deducted on your tax filing. This kind of loan is useful for borrowers who need access to money not just once but several times.
A FHA (Federal Housing Administration) loan – The FHA loan is insured by the Federal Housing Administration. This loan allows borrowers with low or moderate income but do not have enough money for the down payment, as well as low credit score holders, to buy a home using the house they are buying as collateral. The loan is insured in order to provide the lenders with the possibility of getting their money back in case the borrower defaults on the loan. The borrower pays an insurance fee and a 3% down payment, which can be a gift or given by a non-profit organization. This loan is popular with borrowers who are buying their homes for the first time.
A VA (Veterans Administration) loan – The VA loan allows veterans and servicemen to buy homes at zero down payments, provided they can present a certificate of eligibility from the VA that shows they have a record of military service. Like the FHA loan, the VA only insures the loan. This type of loan is only available to veterans and people who have served in the military.
What should I be careful about when looking for Low Credit Score Loans?
Here are some points that you should consider when choosing a low credit score lender:
1. Make sure that the low credit score company you’re dealing with is legitimate. Many websites are scams, and are there specifically to con people into parting with their money or personal and financial details.
2. Just because a low credit score lender’s website says it has a telephone number does not mean the phone number is legitimate. Double check that information and if you can, pay a visit to the company’s offices see if it really exists.
3. Frauds related to low credit score loans may come in the form of an email message. If you receive an email offering low credit score loans, do some research regarding the lending company first before making any decision.
4. When dealing with companies that you picked up from the internet, be extra careful. Don’t give out your Social Security Number, bank account details, your PIN number, or any other information unless you are sure that the company is a credible one and that its website is secure.
What can I expect from Low Credit Score Loans?
Low credit score loans have many differences from loans that given to prime borrowers with good credit scores. Because your low credit score is a warning signal to the lender that there is a high probability that you won’t be able to repay what you borrowed, you pay the price for being granted the loan. Low credit score loans have both good and bad points.
The bad side:
- Higher interest rates – Interest rates for low credit score loans are several percentages higher than the conventional loans.
- Shorter repayment terms – Along with higher interest rates, you have to pay a bigger amount because your loan term is shorter.
- More restrictions – Defaulting on your payments is going to cost you. If you took a low credit score loan and placed your house on a second mortgage, by defaulting you allowed the lender to earn from the 1st and 2nd mortgages while you, on the other hand, stand to lose your house.
The good side:
- Easier chances of getting approved – Because these loans are specifically meant for people with low credit scores, lenders are more forgiving and you have a better chance of qualifying for the loan.
- A good way of rebuilding your credit – If you pay your loan on time, you’re on your way to repairing your credit report and score.
Why should I apply for Low Credit Score Loans?
Low credit score loans address the part of the population who have poor credit but need access to money. A low credit score can be repaired, but only if you take active steps to do so. Low credit score loans allow you to prove to the lenders and credit reporting agencies that you can change your payment habits and are serious in trying to improve your credit score.
By realigning your expenses and paying off your loan on time, your credit score will slowly improve and bring you back into the circle of favored borrowers. Then you can go back to applying for the conventional loans that have less restrictions, higher limits, and lower interest rates.
Think of low credit score loans as an opportunity for a second chance. It takes time to rebuild a bad reputation. If you are serious about improving your credit score, low credit score loans will help, despite the higher rates and terms.
