The Complete Guide For Bad Credit Loans

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Traditional financial institutions, such as banks and credit unions, usually rely on the borrower’s creditworthiness to determine whether the person qualifies for a personal loan and associated costs. This creditworthiness is based on the borrower’s credit history, and if the borrower’s credit is good, traditional lenders will offer more favorable loan terms to the applicant.

However, borrowers with poor credit scores don’t pass the credit check, so traditional lenders typically decline their loan applications or demand unusually high rates due to poor credit scores. Fortunately, there are loans specifically aimed at people with bad credit, and in this guide, we’ll discuss what bad credit loans are and how to obtain one.

What Are Bad Credit Loans?

Bad credit loans are a category of loans specifically designed for individuals with bad credit scores. These are typically offered by specialized, non-traditional lenders and may bear high-interest rates and less favorable loan terms compared to loans offered by traditional financial institutions.

Bad credit loans come in many different forms, including various types of personal loans, car title loans, property title loans, etc. The terms and conditions surrounding different types of loans for bad credit vary greatly depending on the lender and loan type.

It’s important to remember that borrowers with low credit scores pose a higher risk to lenders, which therefore charge higher interest rates to compensate for that risk. It’s also a good idea to check your credit report and see the condition of your credit score.

If you find any errors in your credit report, you should resolve them with the credit bureau to improve your score. This should help you get more favorable terms and a higher loan amount with your bad credit loan.

What Is Considered a Bad Credit Score?

A credit score is a numerical representation of a person’s creditworthiness based on their credit history. The most widely used credit scoring model in the US is the FICO score, and for those who aren’t familiar with FICO score ranges:

  • Any score below 580 — Poor credit
  • 580-669 — Fair credit score
  • 670-739 — Good credit score
  • 740-799 — Very good credit score
  • 800+ — Excellent credit score

When someone has bad credit, it’s typically implied that they have a history of making late payments on their debts and are more likely to be financially irresponsible in the future. Bad credit scores often result from financial inadequacies, which affect both natural and juridical persons, which makes them a greater risk in lenders’ eyes.

Traditional lenders perform credit checks to examine the borrower’s credit history and determine eligibility for a loan. These checks are mostly tied to unsecured loans, but secured loans that are backed up by collateral aren’t exempt from these checks either.

Most traditional lenders consider anything below FICO 670 to be a bad credit score, despite the lower range of 580 to 669 being officially treated as fair and anything below 580 as bad or poor credit.

It’s worth noting that the threshold for what’s considered “bad credit” varies depending on the lender. Some lenders will provide loan products to people with FICO 600 rating, while others won’t consider financing a person with a FICO score of 640. However, some lenders, such as 5-Star Car Title Loans, finance individuals with bad credit scores as they determine loan eligibility in other ways.

How Is My Credit Score Determined?

A person’s credit score is determined by analyzing the information found in their credit report, which is actually a detailed record of their credit history. The FICO scoring model tasks the following factors into account:

  • Payment history — Payment history includes such as whether you paid your dues on time, how many late payments you had, and whether you have any outstanding collections or judgments.
  • Credit use — This metric includes information about how much of your available credit you’re using. High credit use may be interpreted as a sign that you’re overextending yourself financially.
  • Length of credit history — This considers the age of your oldest account and the average age of all of your accounts.
  • Credit mix — Provides an insight into the variety of credit accounts you have, such as credit cards, mortgages, and loans.
  • New credit — Provides insight into how many new credit accounts you’ve opened recently and the number of credit inquiries made on your credit reports.

Each of these factors is assigned a certain value and has a certain weight based on the information in your credit report. The overall FICO score is calculated based on the combined effect of the aforementioned factors.

Types of Bad Credit Loans

There are several different types of bad credit loans divided into two groups: secured and unsecured loans. Secured loans are loans backed up by some form of collateral, like a piece of property or a vehicle. Given that the collateral is a condition for receiving a secured loan, lenders face very little risk with these loans.

However, secured loans put consumers and borrowers at more risk; in case of a default, the lender has the right to repossess the collateral. Unsecured loans, on the other hand, are personal loans that aren’t backed up by any collateral and, as such, usually come at less favorable loan terms. This can make them more expensive compared to secured loans.

Regrettably, the lack of collateral limits the loan funds. Additionally, the eligibility for the unsecured loan typically depends on your credit score—if you meet the minimum credit score requirements, you’re most likely to obtain an unsecured loan.

Car Title Loans

As their name implies, car title loans are secured loans that use your vehicle’s title as collateral. The working principle is quite simple: you provide the lender with the qualifying title to your vehicle, and the lender provides you with cash—usually within 24 hours of signing the terms of the loan agreement.

The loan lender will place a lien on the title, denoting that there’s a loan against the vehicle. The best part about car title loans is that you can keep driving your car during the repayment period for as long as you’re responsible for monthly payments.

If you want to learn more about car title loans, visit 5-Star Car Title Loans, or call us at (888) 309 0994. The company specializes in car title loans and installment loans online and will do its best to meet your needs and even help you on your journey toward financial well-being.

Pawnshop Loans

Pawnshop loans are short-term loan options with higher loan rates and less favorable repayment terms. They use personal items, such as jewelry, electronics, or tools, as collateral. The loan amount ranges between 30% and 40% of the appraised value of the collateral.

You can retrieve your collateral once you repay the loan and associated costs. However, if you default, the pawnshop will take possession of your collateral and sell it at auction. These types of loans don’t require a credit check.

Home Equity Loans

These loans use the borrower’s equity in a home as collateral and are typically available to homeowners with bad credit. These loans require a soft credit check to determine the appropriate annual percentage rates. Home equity loans are typically used for home improvement projects, as they tend to offer lower interest rates and longer repayment terms.

Personal Loans

Personal loans may be secured or unsecured personal loans. The former uses assets such as savings accounts, stocks, or bonds as collateral, while the latter doesn’t require any collateral at all. However, unsecured personal loans for bad credit have higher interest rates compared to their secured counterparts.

Credit Cards for Bad Credit

As with personal loans, there are two types of credit cards for bad credit: secured credit cards and unsecured credit cards. Secured credit cards require a deposit, which serves as collateral for the credit limit, while unsecured cards don’t need any collateral. The latter option has higher interest rates than its secured counterpart and credit cards for borrowers with good credit.

Payday Loans

Payday lenders offer short-term, high-cost loans, which are typically available to borrowers, but they’re far from the best bad credit loan option. The loan term is exceptionally short, the repayment is usually due your next pay period, and the interest rates are exceptionally high; up to 400%.

Where Can I Get a Bad Credit Loan?

Bad credit loans are available from various sources, including traditional financial institutions, online lenders, and other loan companies.

Banks

Banks are known for offering some of the best personal loan packages regarding repayment and interest rates. However, they don’t typically approve loans for individuals with bad credit unless the bank has a specially designed package aimed at such consumers.

If that’s the case, you can expect higher interest rates and less favorable loan terms than loan offers provided to borrowers with good credit.

Credit Unions

Credit unions are nonprofit financial institutions that may be willing to provide loans to borrowers with bad credit. They typically offer “second chance loans” that help union members rebuild their credit.

They typically require some form of collateral or a co-signer, but they offer lower interest rates than any other type of bad credit loan, especially compared to loans offered by specialty or online lenders.

Online Lenders

Online lenders offer a variety of online personal loans for individuals with bad credit, including both secured and unsecured types. The loan prequalification process is typically done online, while the loan application process might require a trip to a local branch office.

Some lenders provide a completely online application process, allowing you to get everything done from the comfort and convenience of your home. Online and direct lenders typically provide quick loan approval and same-day funding, with loan payout being deposited into your banking account within 24 hours or the next business day.

Online and direct loan providers such as 5-Star Car Title Loans offer personal loans like installment and car title loans without any hidden or late fees, as well as prepayment penalties. This makes them entirely transparent and more flexible in terms of repayment.

How to Get a Bad Credit Loan

The actual step to obtaining a bad credit loan depends significantly on the type of loan you want. So, in this section, we’ll explain how to secure a car title loan with 5-Star Car Title Loans. We’ll also provide you with some tips to help you secure a loan, regardless of the type.

Apply For The Loan

Applying for a car title loan with 5-Star Car Title Loans is very simple; the entire process is pretty straightforward and only takes a couple of minutes to complete. You can pre-apply for the loan online or by calling the 5-Star Car Title Loans at (888) 309 0994.

In either case, you’ll need to know your FICO score to complete the pre-application; in case you don’t know what your credit score is, 5-Star Car Title Loans might perform a soft credit check. Not to worry; this won’t negatively affect your credit score.

Additionally, you’ll have to provide some basic information about yourself, such as name, address, and social security number. You’ll also have to provide some information about the vehicle, such as make, model, year, and vehicle identification number (VIN).

Once a loan agent establishes your eligibility, they’ll call you to finalize the loan application and approval process.

Provide the Necessary Paperwork

After our company’s agent has reviewed the information you provided during your application, conditional approval could be given, even though a documentation review is pending. This means you still have to provide the necessary paperwork.

In most cases, this part of the application process requires a visit to a local branch office. However, some lenders allow borrowers to complete the entire process online or via courier services. A pro tip: when photographing documents for submission, ensure all four corners of the document are visible on the photo.

In either case, you’ll have to provide the documents necessary to further establish your eligibility, as well as the terms of the loan agreement and loan amount. These documents include a government-issued ID, a qualifying title to the vehicle, and proof of employment. For a complete breakdown of the necessary requirement, refer to our Car Title Loan Requirements guide.

Once all the documents have been reviewed and your loan approved, the loan agent will call you with a loan offer based on the reviewed information you previously submitted.

Get Your Loan

Signing the loan contract is rather simple; just visit a local branch office with a photo ID and a pen. In case you’re not able to visit us, the contract can be delivered to your home for signing, but this significantly lengthens the process.

You’ll also need to provide the lender with your bank account information, allowing the lender to deposit the fund. Most lenders would transfer the loan amount to a specified bank account within 24 hours if the contract was signed before 2pm lender’s local time or during the next business day.

Helpful Tips

It’s helpful to know your FICO score during the application, as well as address any potential inconsistencies beforehand. Rectifying any discrepancies will increase our eligibility for bad credit loans.

It’s also important to determine your monthly budget when applying for a bad credit loan. Knowing your debt-to-income ratio will help you determine the amount you can comfortably afford to pay in your monthly installments.

Do your homework and check the reliability of your lender. Online reviews and word-of-mouth are good starting points. Lastly, pay your installment in a timely manner. Failing to do so might lead to a default on the loan, allowing the lender to repossess your property or pursue legal action against you.

Things to Consider When Getting a Bad Credit Loan

There are several things you’d want to consider when getting a bad credit loan:

Annual Percentage Rate (APR)

The annual Percentage Rate is the annualized interest rate on a loan, which also includes any fees. Bad credit loans are usually associated with higher APRs compared to loans for those with good credit. Sometimes these rates go up as high as 400%.

This means that if you obtained a $1,000 loan on a one-month repayment period, you’d have to pay off $1,333.33 in your installment. And that’s without factoring in application fees, origination fees, and additional expenses.

Compare APRs offered by different lenders to ensure you get the best possible deal because APRs have a significant impact on the overall cost of the loan. This is especially true if you borrow large sums over a longer loan term. Also, don’t forget to factor in any additional fees, as they’re often included in the APR calculation.

Account Fees

Account fees are usually charged along with the interest rate, so it pays to be aware of these charges, especially if you’re on a tight budget. These fees typically include the following:

  • Application fees — Fees charged by the lender for processing your loan application. Some lenders don’t actually charge these, or they factor it into the loan amount.
  • Origination fees — Some lenders may charge a fee for originating the loan.
  • Maintenance fees — Some lenders may charge a monthly or annual fee for maintaining the loan account.
  • Prepayment penalties — Some lenders may charge a fee if you choose to pay off the loan early, preventing them from capitalizing on higher interest rates. 5-Star Car Title Loans don’t penalize their customers for paying off the loan early.

Repayment Terms

It’s important to understand the repayment tools when considering a bad credit loan. This includes the length of the loan, and well as the loan amount, and monthly payments. Make sure to read the fine print and understand all the terms and conditions of the loan before signing any loan agreements. Here’s a breakdown of the most important factors to consider:

  • Loan Term — Loan term is actually the length of time you have to pay back the loan. Longer loan terms generally have more affordable monthly installments but result in paying more interest over the duration of the loan.
  • Monthly payments — Also known as monthly installments; make sure you can afford to pay monthly installments and that they fit within your budget. If not, talk to your lender about restructuring the loan.
  • Interest rates — Interest rates are the amount of money charged by a lender to a borrower for the use of the loan. This amount is derived as a percentage of the loan amount, and its added to the loan balance each month.
  • Monthly schedule — Understand when and how often you’ll have to make payments and whether there are any penalties for late or missed payments. Most lenders nowadays are flexible with dates, allowing consumers to pick their own schedules.
  • Prepayment options — Consider whether you can make additional payments or pay off the loan early without penalty.
  • The fine print — Make sure to read the fine print and understand all the terms and conditions of the loan before signing any agreements.

How to Avoid Predatory Lenders

Beware of unsolicited offers, and always check your lenders with the regulatory agency to confirm whether you’re authorized to operate, and avoid any advance fees. Legitimate lenders won’t ask for an advance fee or require you to pay anything before granting a loan. Research your lenders online extensively, check the loan terms, beware of high-pressure tactics, and always read the fine print.

Why You Should Consider 5-Star Car Title Loans for a Bad Credit Loan

Our company understands that everyone finds themselves in a difficult financial situation from time to time. 5-Star Car Title Loans has been in business for the better part of the past two decades, helping thousands of Americans who were down on their luck.

We offer competitive rates for all our clients and complete transparency with no hidden or prepayment fees or minimum loan amounts, except those prescribed by individual states.

Summary

Bad credit loans are fantastic funding options for those with bad credit who need quick cash. As they’re mostly considered personal loans, most bad credit loans can be used for any difficult financial situation, whether you’re dealing with a medical emergency, student loan repayment, or other unexpected financial needs.

If you want to learn more about bad credit loans, visit 5-Star Car Title Loans, or call us at (888) 309 0994. The company specializes in car title loans and installment loans online and will do its best to meet your needs and even help you on your journey toward financial well-being.

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