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Credit Cards And Loan Resources For People With Bad Credit

Blogpost

How to get a loan with poor credit

A Guide For Getting Approved For Loans For Poor Credit

on August 13, 2022by Elizabeth Robertsin Bad Credit Loans

 

Secured loans for poor credit are the type of loan that is secured by collateral. The collateral may serve as security for the debts because the lender has got the right to claim the property submitted in case the borrower fails to pay.

Because of the submission of collateral, the risk associated with extending a loan is reduced.

If you have poor credit, applying for a secured loan is generally the best choice.

While it’s not a guarantee, poor credit loans secured by real estate can have better interest rates and longer repayment terms than poor credit loans with no collateral.

img-5Finding companies that offer secured loans for poor credit.

Lenders that give loans to people with poor credit are called subprime lenders. These are lenders that cater to people and businesses where the credit score is below the national average.

But you have to be careful, while there are some subprime lenders that will give you a fair deal.  There are a lot of them that are trying to take advantage of someone in a bad situation.

That’s why it’s important to do your research.

  • Talk to the lenders.  Find out what their criteria is before you apply
  • Ask your lender if they report your payments to the credit report.  This is another great opportunity to rebuild your credit score with a new installment loan line of credit reporting to your credit report.
  • Find out If they use a soft credit pull or a hard one when they make their credit decisions.  A soft credit pull will have no effect on your credit score.  While a hard credit pull will drop your credit score.
  • It never hurts to ask the lenders to preview your application and supporting financial documentation using a credit report you give them.  Some lenders will do this, but some will tell you it’s a waste of their time.  And that’s kind of true.

Consumer credit reports and scores can be VASTLY different from what a financial institution will get.  What you want them to do with your consumer report is look for red flags that may make it impossible for them to approve you. For example, we have a secured business loan offer for business owners.  While they will approve someone with poor credit, they will not approve anyone who has defaulted on a similar loan product in the last 2 years or in some cases, defaulted an a vehicle loan in the last 2 years.

What to do if you are offered a high-interest poor credit loan

Consumers with poor credit have to understand the business side of things.  The financial institutions are making these high-risk loans and charging high-risk rates.  But you don’t always have to settle for what they give you!

You deserve to be treated with fairness and dignity. Some lending companies will try to charge interest rates that are 1% below usuary.

Usuary is the practice of charging more than the highest interest rates allowed by the state.

Usuary rates will vary depending on the state you are in.  If you feel you have been offered a poor credit loan that is charging more than what is allowed by your state, you need to do the research.  Find out what your state’s usuary law is and which department to report the lender to.

But most subprime lenders have learned their lesson and they will usually charge 1% point less than usuary. But you don’t have to accept that rate!

Don’t be afraid to negotiate. Despite having poor credit, you should always try to get a better deal than the initial offer. Recognize your strengths as a borrower and focus on them. For example, you may explain to your lender the steps that you’ve already done to improve your credit rating.

Or focus on the value of the collateral you are offering.

img-6Using real estate to secure your poor credit loan

If you are using real estate, you have a very valuable commodity!  Point out the equity you have in the real estate and how if you choose to sell the property if something went wrong and you would be unable to pay the loan back.  They would get their money when the real estate sells.

So you want the lowest interest rate available since they are not really issuing a high-risk loan!

When a bank uses real estate as collateral, it will place a lien on the property.  The higher their position on the loan, the more secure the loan is.

In most cases, the first position on a real estate loan is taken by the bank that made the initial loan that made the property yours. But the 2nd  position is a highly desirable position too!

What that means is that in the event of a sale, The lender in the first position will be paid, then the lender in 2nd position.  Anything left over would be given to the owner of the property.

So you can see that their money is very secure when they are in either one of these positions. Use that knowledge to your advantage and look for a lender that will give you a reasonable interest rate.

img-7Things to know BEFORE you sign the contract

  1. If you default, you will lose your collateral.
  2. Read the contract carefully.  Look for reasons why they may change your interest rate.  Many poor credit loan contracts will state that the interest rate may even double if you are late on a payment.
  3. This is your opportunity to show your lender, and future lenders that you are now able to meet your financial obligations.  Your lender may be open to lending you even more money the next time you need it with even more favorable rates.
  4. Don’t be afraid to send your contract to your attorney before you sign it to make sure there are no hidden clauses

 

Secured poor credit loans can help you to obtain financing when you don’t qualify for a traditional loan.

 

Article updated 8/13/22 by Liz Roberts

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About Elizabeth Roberts

Liz Roberts is a Sr. Credit Analyst with Horizon Funding Group Inc. She has been in the business credit industry for 23 years focusing on bad credit business owners and start up businesses. Her background is in consumer credit and collections prior to joining the Horizon team as a credit analyst and writer.

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