What Finance Options Exist If You Have Bad Credit
Bad Credit Loans > Bad Credit Loan Articles > Article: What Finance Options Exist If You Have Bad Credit?Do you have bad credit? Have you avoided applying for financing for fear you'll be rejected? While a person's credit score is certainly considered during the financing application process, bad credit should not prevent you from getting the financing you need. There are loan products available for borrowers with less than perfect credit - even from mainstream lenders. Yes, borrowers with bad credit have fewer options than those with good credit ratings. They may also have to pay higher interest rates and face increased scrutiny from lenders. Still, financing is available and borrowers armed with the right education can get competitive offers, even with less than perfect credit. Below we'll explore three of the most common financing options available to borrowers with bad credit.
Payday Loans
A payday loan is a short-term loan designed to help borrowers meet an urgent financial need by providing instant access to cash. Also known as payday cash advances, cash advance loans, or deferred deposit cheque loans, these short-term loans are popular with borrowers who need instant access to financing but lack the credit score required to get approved for a traditional short term loan.
Payday loans are an effective solution for borrowers who need cash now to address an immediate financial need. Payday loans are particularly attractive to borrowers with less than perfect credit because payday loans require no collateral or background checks. Instead, payday lenders secure their loans by obtaining a post-dated cheque from the borrower. The lender will hold the post-dated cheque until the borrower's payday, at which point he will deposit the cheque to pay off the loan.
Payday loans are a great short-term solution for borrowers with bad credit to get out of an immediate cash crunch, especially when these loans are used responsibly. Quick approval, instant access to cash, and few qualifications make it easy to get the emergency financing you need fast with a payday loan.
Non-Conforming Loans
A non-conforming loan is basically a mortgage that doesn't fit within the lender's traditional underwriting criteria. Borrowers with poor credit history frequently apply for non-conforming loans because they do not qualify for the lender's traditional loan products. Non-conforming loans are also popular among applicants who do not have the five to ten percent down payment required by traditional lenders.
Non-conforming loans carry higher interest rates (anywhere from one to five percent higher) than traditional home loans because the lender perceives the borrower's risk to be high. The interest rate charged will depend largely on how poor the borrower's credit rating is. Borrowers with only slightly damaged credit ratings may receive low rates while those with judgments, defaults, or bankruptcy could be charged interest rates in the double-digits. As a result, the costs associated with non-conforming loans are often significantly higher than the costs of traditional loan products. Borrowers can sometimes reduce their interest rate by increasing the size of their deposit.
Non-conforming loans enable borrowers with less than perfect credit or limited income to obtain financing they otherwise would not have qualified for. Borrowers can also refinance their mortgage payment through a non-conforming loan in order to consolidate their debts.
Low Doc Loans
Low documentation or "low-doc" loans are similar to non-conforming loans. These loans earned their name because borrowers are not required to provide the same level of documentary evidence to be approved for a traditional loan product. Low-doc loans do not require borrowers to submit income verification, making these loans an attractive financing option for borrowers who are self-employed or who earn their living as an independent contractor or investor.
Like non-conforming loans, low doc loans often carry higher interest rates. Lenders alleviate the increased risk associated with not verifying borrower's income through increased interest rates. The interest rate on low doc loans can be up to three times higher than traditional loan products. Low doc loans used to be provided primarily by lenders outside the banking industry; however, low doc loans have become more popular among mainstream lenders and bankers.
A bad credit score does not have to prevent you from obtaining the financing you need. Payday loans, non-conforming loans, and low doc loans are available for borrowers with less than perfect credit. Although borrowers with bad credit will have to pay higher interest rates on their loans, they can still obtain financing offers and shop around for the most competitive rates. Furthermore, borrowers with bad credit can use new credit offers as an opportunity to rebuild their credit and get out of debt faster.
What to do next
Finance Comparison lists a number of highly competitive bad credit loans that you can apply for online. Simply compare rates, terms and apply online.
