About one-third of Americans have a credit score lower than 601, which is considered to be bad credit.
Bad credit can influence your life in many ways. It’s more challenging to secure a loan or get approved for a credit card, without sky-high interest rates. In some cases, even landing a job could be challenging.
But bad credit should not stop you from living the life you want. Bad credit loans could be the key to solving some of your money woes, like taking a vacation.
If you do have bad credit, never fear. There are ways to take the vacation of your dreams. Read on to see how bad credit loans can help you.
What is Considered Bad Credit?
FICO calculates credit scores. Although FICO does not release the information used in measuring a credit score entirely, there are five elements that a score is comprised of, each bringing its weight to the calculations:
- payment history
- type of credit
- how much you owe
- age of your credit history
- new credit
The credit scale ranges from 300-850 and each differs slightly in their assessment. A typical ‘bad,’ ‘poor’ or ‘fair’ credit score could be in the lower 300s to mid 600s. A score in the high 600s is ‘good,’ and anything above 700 is excellent or exceptional.
A ‘good’ credit score is most common among Americans.
What Are Bad Credit Loans?
Bad credit loans are another name for personal loans. A personal loan is a loan you can use for significant expenses, such as home repairs, emergencies or unexpected expenses, continuing education, paying off debts, and so forth. They often have lower interest rates than credit cards and a set limit which make overborrowing impossible.
The difference between bad credit loans and personal loans are that the interest rate may be higher compared to someone with a higher credit score. For those with credit scores in the lower 500s to 600s, the interest rate could reach into teens or higher, whereas for someone with significantly higher numbers, the interest rate could be in the single digits.
With a poor credit score, there are limitations on which lender views you as a favorable borrower. Not all banks are willing to lend money to those with low credit scores, though some specialize in it.
A personal loan can take anywhere from 2-3 years to pay off. The amount loaned could be anywhere between $1,000 to well over $40,000 or more. Nevertheless, some banks may limit the amount they loan you if your credit is poor.
How do I Get a Bad Credit Loan?
The method of applying for a bad credit loan is like applying for a regular loan. The best course of action is to shop around for a reasonable rate, whether that be online, your local bank, or credit unions. Be aware, however, that if your credit is terrible, some banks may reject your application.
A credit union is a popular choice for those with a weak credit score. Credit unions will not rely solely on your credit score when considering you for a loan, but other parts of your financial history, such as where you live, your income, and more. The caveat is they will only work with you if you are a member.
Having a co-signer with a good or excellent credit score could land you a lower interest rate. The bank will evaluate that person’s credit and issue them the interest rate for the loan. But, slacking on payments damages that person’s credit, too, so paying on time is vital if you have a co-signer.
10 Benefits of Bad Credit Loans For Vacation
Getting bogged down by life happens to everyone, even those with bad credit! If you’re in pressing need of some downtime, but cannot fund it, a bad credit personal loan could be your answer.
Here are ten benefits of a bad credit personal loan for your vacation.
An unsecured loan means there’s no collateral attached. Collateral would be anything you can offer the bank (think home or car) if you’re unable to make your payments on time.
Secured loans are the exact opposite, meaning they have collateral binding to the loan if payments stop or the investment is unpaid.
Less Expensive Than A Payday Loan
While bad credit personal loan interest rates can be high, they’re nothing compared to a payday loan.
Payday loans hold an interest rate of around 400% (or higher!) and must be paid back in two weeks. Could you enjoy your vacation knowing as soon as you return the loan is due in full? Payday loans also acquire fees and they can mount if your payments are late.
With a payday loan, your vacation could end up costing you considerably more than planned. So, even if you do end up with a hefty interest rate on your personal loan, it’s minuscule compared to that of a payday loan!
(Potentially) Less Expensive Than A Credit Card
Unlike credit cards, personal loans have more palatable rates. Even with introductory APRs, eventually, most credit card rates soar into the upper 20s. Besides, you’re more likely to overspend with a credit card if you have a high limit, which only damages your credit further.
Pay in Installments
To pay back the loan, you will pay in monthly installments, just as you would a credit card or any other loan. This is especially good news coming off a vacation high!
Quick Acceptance and Money in Your Pocket
Once you find the right bank to apply for your loan, approval can happen within moments. There’s no waiting at home drumming your fingers while wondering what’s happening. With a valid bank account number, your money deposits in your account within 24-72 hours after approval.
Easy to Apply
Every lender will have their preferred methods they use for approval, but here are a few key documents needed to begin the application process:
- A form of identification such as a driver’s license or passport
- Bank statements and bank account number
- Proof of income, tax returns, etc.
- Proof of residence or lease, such as a utility or phone bill
Once you’ve zeroed in on a lender, find out what documentation they need so you’re prepared. It also helps to be aware of your credit score going into the application, so there are no surprises.
Don’t Worry About Overspending
One reason a lousy credit score exists is a high debt-to-income ratio. A high debt-to-income ratio usually happens when an individual is not paying off their credit cards in full each month.
Personal loans have limits on the amount borrowed and often you choose your amount. When that limit is maxed out, you may not spend any more. You also only take out what you need, so there’s no overspending. This helps you stay on budget and have a plan for paying it off after vacation.
The average vacation costs around $1,200 per person (this depends mainly on location and many other factors), so make sure you’ve planned for the proper amount before you apply. Having a set budget is another way to avoid overspending.
Lenders Will Work With You
Bad credit doesn’t have to mean life stops. Some lenders are willing to help those with less-than-stellar credit achieve their goals or desires. Shop around online and call local banks to inquire about their processes and requirements before applying.
After the loan application is complete, and you’re approved, you’ll receive what your monthly payments will be. Rates are fixed and not likely to change. The upside to having predictable payments is you can fit them into your budget much more easily than a credit card payment, which usually fluctuates every month.
Should I Apply Online?
Applying for a bad credit loan online can be incredibly convenient. A simple Google search can provide you with lenders who will address those with bad credit, but it may take some extra research and digging to find a reputable company. And if you’re not careful, you could lose tons of money or be the victim of identity theft.
If you’re searching online for bad credit loans, check to see if that lender has an A rating with the Better Business Bureau and read or search for complaints at the U.S. Consumer Financial Protection Bureau. Ensure they have a valid physical address, customer service number and that you’ve spoken to someone directly.
Below are some indications the company may be fraudulent.
If a company asks you for costs up front, quickly close the browser. Although personal loans require fees, no reputable company will ever ask for fees upfront. One major red flag is if they suggest that you send them money via wire transfer.
Promises Too Good to be True
Lenders who boast your approval is guaranteed probably are not worth the risk. All lenders must assess your financial history to weigh the pros and cons of loaning you money.
Sketchy Website or Customer Service
A professional site combined with knowledgeable and friendly customer service is probably a legit company. When the website looks poorly designed, or their customer service is lacking greatly or too sale-y where you feel pressure to buy, it’s probably best to keep looking for a lender.
How Can I Improve my Credit Score?
Overall, securing a loan with bad credit is doable, but you don’t want to stay drowning in the waters of bad credit forever. Owning a home or a vehicle requires good credit, so the goal would be to improve your credit score.
Here are a few ways you can boost your score and secure lower rates.
Review Your Credit Report
Knowing your credit score is good, but seeing the full picture of your credit can give you a greater awareness of your credit health. Update your information to make sure it’s correct. If your credit score is alarmingly low, check it periodically to see the changes.
The accuracy of your report is equally essential as monitoring it. Fraudulent charges could occur, and that can destroy your credit as well. Credit monitoring is a crucial way to keep a handle on your credit.
Stop Applying For Loans if You Don’t Have To
Every time you apply for a loan or credit card, your credit takes a small hit, otherwise called a hard inquiry, in which lenders are reviewing your credit. Your score can diminish by as much as 5 points per inquiry!
Pay Down Your Balances
Revolving balances are detrimental to your credit score. It shows lenders that your debt-to-income ratio is high, making you risky for lending. Keeping your debt ratio at 30% or under is a healthy percentage. Having credit cards is okay as long as you’re diligent and self-disciplined enough to pay them down entirely month to month.
Don’t Eliminate Old Accounts
As stated about, a factor for determining creditworthiness is credit history. While removing old accounts from your credit report sounds tempting, it establishes the length of time you’ve had credit, which is a definite benefit for lenders.
Create A Budget
A budget helps you stay on track with your money every month, so you know where your money is going. Budgeting can stop overspending before it begins.
Pay Your Bills on Time
An overdue late payment can be reported to the credit bureau and have a lasting impact on your credit report which sometimes lasts for years!
Credit scores have an ebb and flow. What your score is today could change in the next week or so. Knowing that a bad rating isn’t permanent should encourage you and help you take steps to fix it.
Bad Credit Loans: Are They For You?
Bad credit is not a showstopper. If you’re ready to take a vacation, gather your credit score or report, and begin searching for a company that accepts those with bad credit. Bad credit loans are possible and feasible.
Looking for a loan but have bad credit? At Bonsai Finance, we treat every customer with compassion and understanding, knowing that everyone has a different financial walk of life. Learn more about us today to see how we can help you!
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Obtaining Unsecured Credit Cards with Bad Credit