by: Rohan RawatPosted on: January 22, 2024January 22, 2024
Home » Personal Finance » Loans » Your Guide to Securing a Personal Loan with Guaranteed Approval Despite a Bad Credit Score
Bad credit loans with guaranteed approval are personal loans that cater to borrowers having a low or bad credit score. Although bad credit loans often carry higher rates of interest than traditional personal loans, their accessibility, flexibility, and instantaneity are what make them an ideal choice for many borrowers.
Let’s explore how the best personal loans with bad credit can help you during financial distress and family emergencies like healthcare expenses, housing loans, weddings, etc.
Understanding How Bad Credit Influences Your Creditworthiness
The credit score of an individual is a reflection of their creditworthiness. When you are low on creditworthiness because of your bad credit score, your financing options become limited.
There are multiple reasons why you might have a bad credit score:
- You might have a high credit utilisation ratio. Generally expressed as a percentage, this ratio signifies the amount of revolving credit you are using with respect to the total amount of credit available to you. A high credit utilization ratio may signal excessive reliance on credit, potentially diminishing your creditworthiness.
- Late credit card bill payments or defaulted EMI payments also affect your creditworthiness negatively. Traditional personal loan lenders view these issues as indicators of financial instability and deem you not worthy of their credit.
- A long list of hard credit inquiries on your credit report also affects your credit score. Lenders perceive this as a red flag as it denotes your over-dependence on credit.
How Bad Credit Loans with Guaranteed Approval Can Help
If managed properly, bad credit loans can be your ultimate savior during tough financial situations. Here are some other ways in which best personal loans with bad credit scores can help certain borrowers:
- No Credit Checks
As the name suggests, a bad credit loan is offered to borrowers with a fair or low credit score. For these personal loans with no credit checks, the lender primarily focuses on other factors such as your sources of income, income potential, credit scores, etc.
- Instant Approval
Compared to traditional personal loans, bad credit loans have higher approval rates. They are aware of the situation’s urgency for the borrower and tend to disburse the loan amount quite instantly if all the required documents are in place.
- Helps to Improve Credit History
Adding a bad credit personal loan to your mix of credit accounts can help to boost your credit score. Also, if you use one bad credit loan to close multiple smaller loans, your credit utilisation ratio will decrease substantially, which, in turn, would help to improve your credit score.
Things to Keep in Mind Before Availing Bad Credit Loans
- The interest rates can go exponentially high
If you have a low credit score, the lender would consider you a risky borrower. This is the reason why personal loans with no credit checks usually have a substantially high rate of interest. Also, if there’s an application or processing fee in the picture, the cost of borrowing the loan would be much higher for you.
- The loan terms might not be favourable
As a borrower with a low credit score, you might not be able to borrow as much as you want. The best personal loans with bad credit are usually offered in limited amounts. You might not qualify for this type of loan if you need a larger amount.
- The repayment tenure might be short
Similar to the rate of interest, the repayment tenure offered by the lender also depends on your creditworthiness. If you avail of personal loans with no credit checks, the repayment tenure will likely be strict and short.
Takeaway
Before availing of a bad credit loan, rethink all the factors as to whether it is the right option for you. Owing to the high-interest rates associated with bad credit loans with guaranteed approval, this financing option might not be everyone’s cup of tea. If you have the financial means to repay the loan, then a bad credit loan could be useful for navigating unexpected financial challenges.
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