Around 30% of Americans have a lower than average credit score. The repercussion of this is the inability to access affordable credit from traditional lenders such as commercial banks.
However, this does not mean that accessing credit with a low credit rating is impossible.
Loans offered to individuals with low credit ratings are usually offered with a high-interest rate. An advantage of going for long-term loans is that they offer ample time to make the installment repayments on time, and in full.
Short-term loans such as payday loans and title loans are predatory. They make repayment close to impossible and charge excessive interests and fees.
Here are seven long-term loans you can get with a poor credit score without destroying your finances.
Join a Credit Union
Credit unions are owned and controlled by the members. The members save and some of this money is offered to those who need loans at a friendly rate. Credit unions do not focus on making profits, but rather on helping their members to improve their financial situation.
For these reasons, they would be more willing to offer riskier loans to members and at lower rates compared to commercial banks. Join a credit union in your place of work, community, or one based on your occupation.
Consider an Installment Lender
The terms of an installment loan vary among nation 21 loans lenders.However, a common characteristic is scheduled payments spread out over a time period ranging from two months to ten years. The interest rate may be higher for a borrower with a poor credit score.
As long as you have adequate income that can pay back the loan, and a US bank account, you can get an installment lender online. Check the lender’s reviews before getting into an agreement. Do a thorough background check, read the terms of the agreement carefully,and ensure you understand what you are getting into.
Take Advantage of Government-Backed Loans
If you are looking to apply for a mortgage and have a low credit score, the Federal Housing Administration could be a suitable option. With a rating of at least 500, you could qualify for a mortgage.
Those with a credit score between 500 and 579 are required to make a 10% down payment. For a rating that is 580 and above, a 3.5% down payment is required. FHA lenders include Quicken Loans and New American Funding.
Join a Peer-to-Peer Lending Platform
Investors have found an opportunity in the strict regulations and risk aversion that restricts commercial banks. Peer-to-peer online lending platforms make it possible for risky borrowers who need funds to get loans from investors who want to earn interest.
Whatever the amount you wish to borrow, and for whatever period, the platform will match you to a suitable investor. The interest rate will depend on the amount of risk involved. The most popular P2P platforms are LendingClub and Prosper.
Apply for a Guarantor Loan
Some banks will still offer a long-term loan if you have a poor credit score, but a guarantor will be required. The guarantor will co-sign the loan agreement. In case you default, the lender has the right to ask for payment from the guarantor.
The co-signor has to have a solid credit rating. Ensure you have no financial ties with your guarantor, but blood ties are not an issue. Besides banks, you can get guarantor loans online from reputable lenders.
Use Home Equity
If you are a home-owner, getting a home equity loan could be possible despite your poor credit rating. The home acts as security. The bank may require that you borrow a smaller amount and secure it with greater equity. If you own more than 20% of the home, the lender could consider you as a low-risk borrower and provide better terms.
A home equity loan is a fixed amount offered with fixed interest.Repayments are expected in installments over an agreed period of time that could go up to 30 years. A home equity line of credit(HELOC)is where the lender allows you to withdraw money as you need over a given period.Repayment with interest begins after the expiry of the given period.
Family and Friends
There is one option that most people with poor credit scores often overlook – friends and family. Few people would pass on an opportunity to earn interest on money they currently do not need.Since these are people close to you, they would probably not charge exaggerated interest rates.
A common fear for such engagements is the failure of making payments on time, which could strain the relationship. Be a responsible borrower and make timely payments. Try to straighten your credit records as well; borrowing from people close to you should not be a regular thing.
With a variety of options to choose from, you need to be careful about the lender and loan you pick. A wrong choice could have you working with hungry loan sharks who are out there to exploit you.
Here are a few things you should consider:
How much are the monthly repayments?
Ensure that the monthly installments are affordable. The payment will depend on the time period, interest rate and the principal amount. It should not be too much, causing you to fall back on repayments, lose the security, and get into a recurring cycle of debt. Study the contract well and keep an eye out for hidden fees that could increase your installments.
Does the lender consider your ability to repay?
Because your credit score is poor or non-existent, a responsible lender should carry out a background check on your financial situation. They canconfirm your source of income, check your utility bill payments, and ask for bank statements. If they don’t, it’s highly likely that they are out to trap you in a debt you can’t repay.
Do they give repayment reports to credit bureaus?
A lender who reports timely payments to credit bureaus is a better option. They will not just solve your immediate financial need butwill also help in improving your credit score. Be sure to pay the installments on time.
In conclusion
Financial hurdles do occur, and in some cases, they can destroy your credit rating. However, don’t worry. There are plenty of lenders ready to offer long term loans in spite of your poor credit score.
When choosing the lending institution, make sure to carry out a background check, look at reviews from previous customers, and carefully check the terms of the engagement. Ensure that they fully meet your needs in terms of amounts, installments, and the repayment period.
By following these tips, you will no longer have to settle for predatory lenders out of desperation.