Check Top Credit Alternatives for Poor Credit Score Holders

Loans that are crafted particularly for individuals with no credit score or loans for low credit score are called secured credit loans. Many lenders are often hesitant to lend to individuals with low credit scores as there always is a higher credit risk attached, i.e., the risk of defaulting on loan payments. A low credit score signifies a low repayment capacity of the individual, and hence, such individuals usually find it challenging to get a lender who can offer a loan.

A secured credit loan can rescue those who have a low credit score or have zero credit score. Such loans are generally secured in nature. This means the individuals must provide security or collateral like gold, property, financial securities, and others to get the loan approval.

What are the reasons for a poor credit score?

Your credit score might be low because of the below-listed reasons: 

∙       If you miss out on your credit card bills frequently.

∙       If you do not make your loan EMI repayments.

∙       If your credit application has failed.

∙       If you have borrowed previously and not made any timely repayments.

∙       If you have not availed of any loan before and have no financial track history.

When should you take up a secured credit loan?

Secured credit loans are basically loans for low credit score. It must be taken up just when required, which can be when you witness any of the listed situations:

∙       When your loan application is rejected by various lenders owing to your low credit score.

∙       When on credit score check your rating is below 750

∙       When you have defaulted on the repayments of your credit card.

∙       When you have no other medium to manage your debts.

∙       When your financial condition has ameliorated, and you can simply afford to repay your loan to repair your credit rating.

Crucial things to know before availing of a secured credit loan

Before you decide to take up a secured credit loan, make sure that you can bear the listed below points: 

∙       Conduct thorough research to know the various benefits offered by different lenders. Select the lender that provides a lower rate of interest.

∙       Before applying for a bad credit loan, ensure to check your loan eligibility to make sure that your loan is not turned down as that might damage your score further.

∙       Ensure to go through the important terms and conditions available on bad credit loans so that there are zero surprises later.

∙       Assess your repayment capacity before you determine to apply for a credit loan.

How can you enhance your chances of securing a secured credit loan? 

∙       Prove that you can simply repay the loan EMIs: Despite your low score of below 750, lenders might offer you a credit option if there is an enhancement in your earnings. Hence, if you directly communicate to the lender about the enhancement in your earnings and your affordability to repay the EMI, there is a high chance of them providing you with a loan.

∙       Offer security or collateral: Offering security or collateral enhances your chances to avail a loan as the risk linked with lending falls. Lenders feel much more confident about offering you a loan in case of any defaults, and they simply can auction or sell the security or collateral to recover the outstanding amount.

∙       Apply with the co-applicant: When you place an application for a loan with a co-applicant who is credible, your loan eligibility to avail of the loan is enhanced. So, when you hold a low credit score and want to secure a credit loan, apply for it with a co-applicant.

What is the distinction between unsecured and secured loans? 

Secured loans

If you own a home or any expensive car or property or any considerable asset, then you can utilize this as a security. It, in turn, makes you eligible for the secured loan option. Secured loans are available at a lower interest rate than personal loans. At times, when you require a huge loan amount, this is the only option that is left. But if you availed of this loan, always ensure to meet your repayments because you may lose out on the asset you provided as security.

Unsecured loans

An unsecured loan is provided to applicants depending upon their credibility. You, as an applicant, will not require providing security or collateral for the loan. You must hold a strong credit score to get the unsecured credit option. The loan option is not supported by any property or asset. Interest on the credit option is fixed and due towards the end of a particular time period.

To avail of the unsecured loan, ensure to maintain a strong credit score. You must ensure to make all the repayments on time and not default.

Which lenders to approach for the secured loan option?

If you have a bad credit score, pledging security can assist you in availing of a good loan deal. Providing security reduces the risk linked with lending, and hence you can better negotiate with the lender to get a lower rate of interest. Such loans that are provided against security or collateral are called a secured credit option.

However, if you have no collateral or security to pledge and are looking for unsecured loans, you might be eligible for the loan if your month-on-month earnings are on the higher end and you are employed with a reputed organization. In these cases, banks may charge a higher rate of interest, and there are also chances of availing of a lower loan amount. For example, as per the normal circumstances, your loan amount eligibility usually is 80-90 percent, and if your credit score is poor, loan amount eligibility may be between 65 and 70 percent. Also, in such loans, there are chances that you may be provided with a shorter loan repayment tenure because the banks look at collecting the loan proceeds as early as possible. Besides banks, there are 2 other ways to avail of this loan. You can approach NBFCs (non-banking financial companies) and P2P (peer to peer lending) for the loan.