Bank Loans for People with Bad Credit
You find me an adult who has never made a single blunder with their credit – not even one late payment – and I’ll show you the tooth fairy. Seriously, life is way to complicated and way too fast moving for a person never to slip up once and send in their car or mortgage payment a couple of days late. And if you’ve had a late payment, you’ve messed up your credit. Down the road when you need to borrow some money you’re going to have to start looking for bank loans for bad credit (also sometimes called bad credit personal signature loans).
It doesn’t have to be the end of the world though. Each year hundreds of thousands of people suffer a few smudges on their credit score, and each year they’re still able to borrow (collectively) millions of dollars. It’s just a question of understanding why banks will still loan money to people with bad credit or even horrible credit. From the banks’ point of view, lending is all about risk and return. Lending money to anyone – no matter how good their credit is – carries some risk that the person might not pay the money back. Banks cover that risk by charging interest.
You can think of interest as being a scale with credit score on one side and interest rate on the other. The higher a person’s credit score, the lower the interest rate the bank will need to charge them to cover their risk and insure the value of their investments over time. On the other hand, the lower the credit score the higher the risk to the bank, which means a higher interest rate. This is why people who want to borrow money from banks even though they have really bad credit will often end up paying upwards of 25% interest – even on something as small as a $1500 loan. People scream and whine that this isn’t fair, and in some cases maybe the bank is trying to take advantage of people, but the mathematical reality is that banks have to charge high interest to poor credit borrowers just to make sure they can stay profitable and stay in business, period.
So, if you have awful credit but you still need to borrow money from the bank, here are some thoughts on how to maximize your chances of getting approved:
1. Go through the loan approval process in person, face to face with the bank’s representative. I know it’s much more convenient to browse through the major lending websites looking for a quick loan, but you’ll almost never get the best deal by filling out a form online. When you meet with a loan officer in person you have the chance to be very up front about your circumstances. Talking with you face to face will make them want to work on your side to get the loan done.
2. Don’t be afraid to negotiate the terms of the loan in spite of your bad credit. You need to think of this loan as an opportunity to rebuild your credit, and if you’re going to make your payments on time those payments need to very easily fit inside your monthly budget. If they’re going to fit inside your budge the interest rate needs to be as low as possible, which is what you’ll have to tell the bank rep as you iron out the details of the loan.
When all is said and done, please make your payments on time and work to manage your money a little better so you don’t end up needing another one of these loans in the future.