Having bad credit is a bit of a vicious cycle. In order to improve your credit rating, you need to get out of debt. However, to do that you need more money from somewhere… and nobody will give you a loan if your credit is bad!
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Car Title Loan
A car title loan is a loan secured against your car. Your car is used as collateral, so it means that people with bad credit are more likely to be given a car title loan than they are other types of loan. However, the interest rate is generally higher than that of other loans.
The basics about what a car title loan is and how does it work are:
- The title or ownership of your car is used as collateral to secure the loan.
- A car title loan is intended as a short-term loan, generally over 24-48 months.
- It comes with a high interest rate and a triple-digit annual percentage rate (APR).
- The loan amount you can obtain will be based on the value of your car. Generally, you won’t be allowed to borrow more than 85% of the value of the car.
Payday Loan
Payday loans are so called because they are designed to be paid back by your next pay day.You generally won’t have your credit checked by a payday loan provider, so you can still get one with bad credit. Normally the amount that you can borrow as a payday loan will be under $500, and there are severe penalties for late payment. The interest rate is also very high, which is why these companies can exist. It’s worth knowing that payday loans are illegal in some states, and in others, the amount you can borrow is closely regulated.
Personal Loan
It may be possible to obtain a personal loan froma bank or credit union, even if you have a poor credit score.They will offer both secured and unsecured loans, so it may be possible for you to borrow a sum of money on a secured basis, meaning that you put up something you own as collateral. Alternatively, you may be able to obtain an unsecured loan; however, the interest rate will generally be higher for those with bad credit.
The good thing about personal loans from a bank or credit union is that generally the interest rate will be lower and the repayment time more flexible than with loans obtained by other means.
If you are considering any kind of loan, always do your research and ensure that you take out the loan that is best for you and your circumstances.
Peer-To-Peer Lending
Also known as P2P or marketplace lending, peer-to-peer lending means going to the marketplace to ask for a loan. For example, you might ask a company to invest in your business idea.Essentially P2P websites allow you to borrow money from an investor without needing to go through a bank to act as a middle man. Because there is no bank involved, credit checks are often less rigorous and interest rates may be lower than if you were to take out a car title or personal loan.
It’s important to note that both you and the person investing in you won’t be as protected as you would when borrowing through more traditional routes, so it’s important that you research this option fully and understand the risks before going ahead.
How to Improve Your Credit
Depending on your situation, it might be more advantageous to concentrate on improving your credit rating, rather than taking out additional loans to add to your debt. It’s always best to be cautious when taking out any form of loan.
You can check your credit rating quite easily by using online credit checking services such as Experian or Equifax. This is a great first port of call if you have bad credit, as it will help you to identify the source of the issue and provide you with helpful ideas on how best to resolve it.
According to CNBC, some measures you can take to improve your credit score are:
- Paying your bills on time each month. Late and missed payments impact your score.
- Never missing your mortgage payments!
- Stop applying for credit. Each credit application makes a mark on your overall credit score.
- While it’s not a good idea to keep applying for credit, it is a good idea to utilize some of your borrowing capacity. Generally, you’ll want to be using under 30% of your available credit.
- If you have a willing friend or relative with good credit, you could ask them to add you as an approved user of one of their credit cards. This will improve your rating.
If you are in debt already, the most effective thing you can do to improve your credit rating is to try to reduce the amount of debt that you have.
