3 Types of Loans to Get If You Have a Bad Credit Score
You require several things to build a healthy financial life, and one of those essential things is your credit score. You will be missing out on many things without it, like taking out loans, purchasing a house, car, etc. Unfortunately, not everyone has a stellar credit score, and not to mention that many people are also just starting to build their credit scores.
Taking out loans is almost impossible for people who have a bad credit score or just starting to build it. Thankfully, there is a type of loan that they can turn to when they need it – bad credit loans.
In essence, bad credit loans work mainly like regular loans such as personal loans but with crucial differences like higher interest rates, shorter repayment terms, and a more limited borrowing limit. So if you’re looking for a loan with poor credit but aren’t a fan of bad credit loans, these loans might interest you.
Credit Union Loans
Credit unions are community-based organizations made by the members for the members. It also means that every member partially owns a part of the credit union, but you have to fulfill their criteria to become a member. For example, you have to be in the same church, HOA, or even PTA to be eligible for membership.
Credit unions offer the same products and services as traditional banks, like credit cards, loans, mortgages, etc. However, the main difference they have from traditional banks is that they are more focused on helping the members when they turn in a profit. For example, the credit unions were able to hold on to savings. They usually pass these savings on to their members in the form of lower interest rates on loans, higher interest on savings accounts, and even loan discounts.
Credit unions aim to promote the financial well-being of their members, and because of this, one can say that the members themselves are the ones financing your loan. Even if you have a bad credit score, it will still be easier for you to take out a loan, especially if you’ve been a credit union member for a long time.
Home Equity Loan
A home equity loan, also known by some as a “second mortgage,” enables the borrower to take out a loan against the equity they have on their house as leverage. The loan amount will be dispersed as a sum in your bank account once approved, which can be used for different purposes depending on the borrower.
The loan amount is based on the combined loan-to-value ratio and the home’s appraised value. Traditional home equity loans have a set repayment term, generally 15 years. The monthly repayment is mostly fixed, but you can also opt for a variable monthly installment. Should you want to relocate, there’s a chance that you will end up losing the money on the sale or just outright not being able to move.
Payday Loans
A payday loan is short-term financing that allows the borrower to take out a loan to be paid by their next salary. Although the loan itself can be as minimal as $100, the APR can usually go as high as triple digits if you’re unable to pay by at least two weeks.
Payday loans are unique and work differently than other consumer loans. It’s mainly because all states have different laws surrounding them. For example, some states limit the amount you can borrow for a payday loan, and others even go as far as to ban them.
Once you’re approved, you can get the cash via a check sent to the mail or directly through a bank transfer. The median for a payday loan is $350 on a two-week term, but the typical range is $50 to $1,000, depending on your state’s law. Regarding the interest rate, it’s usually fixed and depends on the amount of money you took out as a loan.
Since it’s fixed, they are usually in the form of a financial charge. Also, one of the main reasons why payday loans are popular is because they require little to no credit check. And because of this, they are considered one of the bad credit loans from CreditNinja, along with several others.
Final Words
Not everybody has a stellar credit score, so people look for loan alternatives that they can get with a lower interest rate. If you’re looking for one, try any of the above options. However, they are highly situational, so we recommend you research first before trying one.
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