Bad Credit Personal Loans

You Can Most Likely Get A Loan, But Your Interest Rate Will Depend On Your Credit History

Apparently most people believe that there's no such thing as bad credit personal loans, but actually, even individuals with a poor credit report often manage to get loans - but not in all cases.

If your credit history is extremely bad you would have great difficulty finding a lender, if at all.

There are some financial institutions that will give bad credit personal loans, but it will come as no surprise to you that they will charge a higher interest rate. You will have to hunt for lenders who offer loans to people with bad credit.

You could start by approaching banks, althouth your chances aren't as good here. You may want to read my page Bad Credit Bank Loans

Interest Rates

Interest rates will vary depending on the severity of an individual's problems. In other words, some issues affect all borrowers, but they differ in their degree of severity.

Your interest rate will depend on just what your credit report shows. The interest rate is calculated by using the common rate of interest nationwide, plus the degree of risk your loan entails.

Secured Loan

A secured loan means you have something such as a house or car to offer as collateral (security) in case you aren't able to make your payments. The lender could then seize your possession.

Loan To Value Ratio

To find out your eligibility for a loan you need to calculate the ratio between the amount being borrowed and the total value of collateral being offered. This ratio is referred to as "loan to value" or LTV.

An example of this would be a borrower qualifying for a 70% LTV loan and purchasing a house for $100,000. The borrower could then obtain a loan for $70,000.

You should note that almost always on a new home, the value used will be the lower of the purchase price or appraised value. eg: You buy a home for $80,00 but it's appraised at $100,000. This will result in much less money available for the purchase. Sometimes a down payment grant can be used to cover the deficiency in funds.

You may also want to read bad credit mortgage loans.

Debt To Income Ratio

Calculate this ratio by adding up all the borrower's debt payments plus the loan being applied for. Divide this number by the net cash available each month for living expenses including debt. Lenders normally require this ratio to be 40% or less.

For some low interest bad credit personal loans, a low debt to income ratio would be required.

Lenders in the sub-prime market (loans to high risk borrowers) permit more flexibility in the income ratio. Sometimes they will allow the debt to income ratio to go as high as 55 to 60%. Higher interest rates are charged for this increased flexibility.

Borrowers with poor credit are a higher risk; therefore lenders charge a higher rate of interest, and higher points, to compensate for this increased risk. If you have a good credit rating you should be on your guard against lenders who will charge you the same rate of interest as they would a high risk borrower.