Credit scores are in place to gauge the ability of a person to repay a loan. These scores can range from 300 to 850, with a higher rating indicating a higher likelihood of payment. A person with a score lower than 650 is generally considered as having poor credit, although the definition of a bad credit standing may sometimes differ with different lending firms. In the US, the average FICO and Vantage scores stand at 695 and 673, respectively.
Credit scores affect the likelihood of approval for loans and credit cards as well as the rates these institutions will give you. If a person with a lower score is approved, they may pay higher interest rates or have fewer advantages. Approval for apartment applications and employment opportunities may also be affected by a low credit score.
If you need a loan, but you are still building your credit score or have poor standing, here are the five types of online loans that you should take advantage of.
Payday loans are a type of loan where the amount borrowed and the interest is to be paid within a year. Payday loans online have higher annual percentage rates (APR) and come in the forms of merchant cash advances, lines of credit, and installment loans. Loan amounts can vary, from $50 to thousands of dollars, in some cases. These loans are best for emergency situations where a minimal amount of money is required.
There are loan providers that allow the borrowers to take out installment loans, which allows the borrower to make equal payments over a specified time until the amount is paid off. This loan is usually bound to collateral such as a house or a car, as it is usually taken out to pay for home mortgages, car payments, and student debts. The presence of collateral is used instead of the credit standing. Loan amount and duration varies considerably, although an advantage is the fixed monthly payment. Some lending institutions do not ask for collateral and may only require a steady source of income and a checking account, but the loanable amount will be smaller in this situation.
Bad Credit Loans or Short-Term Loans
Bad credit loans, or short-term loans, have higher interest rates compared to installment loans and are deemed more expensive. Some of the requirements are a regular income of $800 to $1,000 per month, a checking account, verified employment, a valid email address, and a phone number. Online applications are available with some lenders.
Small Business Loans
Small business loans are made for entrepreneurs with a low credit rating to fund their businesses. Most online microlenders offer business owners $5,000 to $30,000 as loan amounts. The good thing with this type of loan is that lenders report your payment to the credit bureaus which can affect your credit score positively if you are on time with your payments.
Other lenders offer larger loan amounts, up to $300,000 if the business has been running for more than a year. Repayment of the loan can be made over the course of anywhere between six months and five years. Government loans for small businesses are also available and are commonly offered through banks and credit unions that partner with the federal agency, SBA.
Home and Auto Loans
Federal Housing Administration (FHA) loans can be your answer if you need a small loan for housing needs. Interest rates can be as low as 5.8% for credit scores of 580 or higher. Subprime auto loans are also available if you need a new car but have poor credit standing. There are numerous lenders specializing in home and auto loans and each has different requirements to obtain the loan such as proof of income, six-month employment history, evidence of a working phone, and personal references.
Having bad credit does not always mean that you are not qualified for a loan. Don’t be discouraged by your credit score because there are still options such as payday loans, installment loans, small business loans, and loans specifically for home and auto needs. If you have bad credit, apply to these numerous options available, then repay on time to improve your credit score.