The reason so many people have low to bad credit is not necessarily because they have bad credit history. Sometimes a person may simply have too much debt compared to how much money they make despite having made all their previous payments on time. Or, it could be that the person has yet to establish any kind of credit history at all.
In these cases, lenders often have a difficult time justifying the risk involved with a traditional loan. However, there are still several non-traditional loan options for people who need financial assistance.
Option 1: High Interest Rate Loan
When a lender receives your traditional loan application, they will normally check your credit score to see how likely it is that you will make the payments on the loan you are requesting. If you have a history of failing to make payments, or no history of making payments at all, the lender may deny your application without looking any further. However, many lenders understand that changes to an individual's financial situation, including paying off previous debts or getting a new job, might not be reflected in an applicant’s credit score. For these cases, lenders have created High Interest Rate Loans which help mitigate their risks while still allowing a person who has low to bad credit to receive the financial assistance they need. High Interest Rate Loans will have stricter repayment terms and higher interest rates than traditional loans, but are a good option for someone who’s credit score is prohibiting them from gaining approval for a traditional loan. If you have not established a credit history, or if your financial situation has changed recently and your current credit score does not reflect that change, a High Interest Rate Loan might be the right source of financial assistance for you.
Option 2: Co-signed Loans
Sometimes referred to as Guarantor Loan, this type of financial assistance requires the applicant to have a co-signer who is willing to pay the debt if the applicant fails to make the payments.The repayment terms and interest rates on a co-signed loan will usually be more favorable than a High Interest Rate Loan, however these types of loans can be difficult to procure if you do not have someone willing to co-sign for you. Guarantor loans can be a great option for someone who has yet to establish any credit history and knows a reliable individual who would be willing to vouch for their ability to repay this loan. If you do not personally know anyone who is willing or capable of co-signing a loan with you, there are organizations that can act as a co-signer, however, there are often additional fees associated with these types of organizations and you may want to do some research into the terms of any loan signed with their support.
Option 3: Collateral Loans
If you are looking for a lower interest rate loan and do not have a co-singer, a collateral loan may be a good option for you. Collateral loans use the re-sale value of an asset you own, rather than your credit score, to ensure you will be able to repay the loan. In the unfortunate event that you are unable to make the payments on your loan, the asset you have offered as collateral will be collected by the lender to repay your debts. Many lenders will accept a variety of assets as collateral, including: real estate, vehicles, jewelry, and collectibles. This loan option is good for individuals who have low to bad credit or no credit history, do not have or want a co-signer, and have a valuable asset they are willing to place as collateral. You may also want to compare the terms of this type of loan against the terms in a High Interest Rate Loan to ensure you are getting the best offer possible.
1. https://www.privacyguard.com/bad-credit-score-explained.html 2. https://www.myfico.com/CreditEducation/FactsFallacies.asp 3. https://www.selflender.com/blog/insufficient-credit-history-what-to-know.html 4. https://www.investopedia.com/terms/i/interestrate.asp 5. https://en.wikipedia.org/wiki/Unsecured_guarantor_loan 6. https://www.thebalance.com/co-signing-how-to-find-a-co-signer-315537 7. https://www.finder.com/collateral-used-for-loans