What Financing is Available if you Have Bad Credit?

By: Clint Jhonson
Is your personal credit score lower than you would like it to be? If so, don’t be discouraged as there are in fact still financing options available for you to consider. Using available credit wisely can enable you to rebuild your credit score over time. When searching for credit options, be sure to evaluate each one to ensure that you are making the best possible financial decision for you and your needs.

Pre-Paid Credit Cards

One of the easiest credit steps that you can take if you have bad credit is to apply for and secure pre-paid credit cards. Pre-paid credit cards extend you a spending limit equal to the amount of money that you place as a deposit, essentially working as a personal line of credit. As you repay the amount you spend, the pre-paid credit card company will report your positive payment history to the credit reporting agencies. Over time, you will be working to rebuild your credit score. Many borrowers will gain access to several smaller pre-paid credit cards to rebuild their credit faster than with just a single card. And, with good payment history, you will be eligible to apply for unsecured credit lines.

Home Loans

Even if you have poor personal credit, you can still secure home loans. One of the most significant differences of mortgage loans provided to individuals with strong credit scores and to those with poor credit scores is the interest rate offered. Interest rates are higher for individuals with lower credit scores to help protect the lender against default. Another key difference is that the deposit amount for an individual with poor credit will be higher than with an individual with strong credit. An individual may only be able to secure a home loan with 20%+ down. So, be prepared to place a more significant percentage of the home’s value as a deposit amount if your credit is poor.

Auto Loans

Yes, you can still obtain auto loans even if you have bad credit. In fact, obtaining an automobile loan is generally the easiest form of financing to obtain when a person has bad credit. And, the reason is that there is something that can be repossessed in the event of a loan default, giving the lender more financial security when creating and approving the loan. Similar to a home loan, the borrower will be faced with a larger interest rate for their purchase. Generally a borrower can expect to pay anywhere from 3-10% higher interest rates than another borrower with strong credit scores for the same purchase. In addition to a higher interest rate, borrowers must also place a security deposit or general deposit to complete their purchase. The deposit shows the lender good faith on the part of the borrower and offers the lender added financial security.

Personal Loans

Individuals with bad credit may be seeking personal loans in the form of lines of credit or debt consolidation loans. Personal lines of credit are offered less frequently to borrowers with bad credit scores as there is often nothing of value to secure the loan against. But, when they are offered they are offered at higher interest rates than traditional prime rate loans. Debt consolidation loans can enable borrowers to repay their personal debts back quicker and so they are often approved. These loans are designed to pay off all of the consumer’s debts at a lower rate than they currently are at on average, lowering the borrower’s total monthly payment amount. This lowered amount allows the borrower more flexibility in repayment and can often mean the difference in keeping them in or out of personal bankruptcy.

While consumer loans and other forms of credit are offered at higher interest rates to individuals with poor credit scores, they are still available. And, with good repayment history, these loan types can help the individual to rebuild their credit score over time. In many instances after 1-3 years the individual’s credit score will be improved enough that refinancing could be an option. And, with refinancing, interest rates can be lowered as well as monthly payment amounts. So, patience and solid repayment of consumer debts can work to rebuild a person’s credit score.

Do you want to qualify for a loan but have poor credit? BadCreditPersonalLoans is an information site designed for people with a bad credit rating. It contains hints and tips on bad credit, obtaining the best personal loan interest rates, understanding bank rejections and more.