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Private loans provide quick financial relief to borrowers who are often turned down by banks and traditional lending facilities. This means that even if the applicant has a lower credit remark, they can still have the financial assistance they desire.
Put it another way: A bad credit loan, which is also known as a personal loan, can help you during financial distress even if your credit rating is below than the minimum limit of banks and traditional loan providers.
That being said, you can have the money you need for car repair, payment for credit card debts or medical bills, or other minor expenses. Therefore, if you’ve been rejected once or more times by a lending facility, do not lose hope. There are still a few lenders you can rely on.
Private Loan Options For Fair Credit Borrowers
Having a good or excellent credit rating is ideal; however, it is hard to maintain and acquire. Luckily, there are bad credit loans that will allow you not only have the advance you need but also, an easier repayment term. Unlike payday loans, you can settle this type of loan in fixed monthly installments. Banks may offer it but if you want a lower interest and a higher approval rate, here are your other options:
Like banks, credit unions offer loans to their members on a lower rate and more flexible terms. This is a great option when you want to find affordable loans that will not conduct any credit check.
If you can ask a family member, a friend, or a colleague to become a guarantor, you can increase your chance of getting a loan despite the bad credit. The role of the guarantor is to back you up in case you fail to settle the loan.
In this loan, you can use your asset as a security against the loan. It is risky if you plan to default on your debt but can be helpful if you want to increase your approval rate, a bigger loan amount, and a small interest.
Private Loan and Your Credit Score
A loan can and will always affect your credit score, whether positively or negatively is entirely on how you manage your loans. If you want to know how your credit score gets affected, we’ll start by knowing what is a credit score.
How Does a Credit Score Work?
Your credit score is made using the information from your credit reports, which tracks the history of your credit.
There are a lot of information that can be gathered from your credit report, which includes what type of credit you have, how much credit you’ve used, whether you pay your bills on time, and so on. As long as it involves your credit, your credit reports will show it.
All of those are taken account into when getting your credit score. The most common one would be your FICO score, which your credit is scored from 300 to 850. A score from 720 above are considered excellent while having a score below 630 is considered bad.
Factors in Coming Up with Your Credit Score
There are 5 factors on which FICO will look at when getting your credit score. The two most important ones are your payment history; it makes up 35% of your credit score, and your total amounts owed; which is 30%. The two of them make more than half of your credit score. Other factors are the length of your credit history (15%), credit mix (10%), and your recent credit inquiries (10%).
How a Loan Affects Your Credit Score
Now that we’ve covered how your credit score works, we’ll know take on what affects your credit score. A loan can affect your credit in both ways, if you’ve managed it correctly, then you can use it to build your credit even more. Every time you successfully close off a loan, it will directly reflect that onto your payment history.
But if you miss a payment, that won’t do you any good, the more payments you miss, or if you default your loan, your credit score will likely take a dip.