Bad Credit Loans: Get the Best Offer

The best bad credit loans provide for flexibility should your situation improve. Unfortunately, there is little you can do in the present to reduce the cost of a loan if you do have poor credit. Traditional lenders may turn you away, and even government agencies designed to assist in reducing the cost of loans, such as the Federal Housing Administration, cannot be of assistance if you have bad credit. As a result, you will likely be stuck working with a high risk lender and paying high fees. Thankfully, if your loan is flexible, you can hope for improvement in the future.

High Risk Lending Options

Bad credit borrowers are too risky for many traditional lenders. These lenders will not be able to extend loans with a high chance of default, and they will likely turn you toward a higher risk opportunity. Private finance companies, hard money lenders and even some credit card companies are more likely to take on your loan. These lenders will still assess the risk associated with the loan, and they will only take the risk if the reward promised is high. To assure a high reward, high risk lenders assess large financing fees and impose strict terms. This is the area to be concerned about.

Obtaining a Flexible Contract

There may be no getting around high financing fees, but you should attempt to avoid strict terms on your high risk loan. For example, some lenders will attempt to make refinancing very difficult for you by building in high penalties if you decide to alter the contract. This means, even if your credit improves in the future, you will not be able to refinance the loan for a less expensive option. Keep your eyes open for these issues, and ask the lender what you can do to remove them from your contract. Some may be removed through providing a large down payment, using a cosigner or providing additional collateral.

Avoiding Penalties

Once your contract is set, make sure you understand the terms of your high cost financing. Avoid all penalties, like late fees or early payment fees, by knowing the dates on your contract. For example, your 7-year contract may impose a penalty if you prepay the loan within 3 years. This is to prevent you from immediately refinancing. However, if you simply wait until the 3-year mark, you may be able to prepay without penalty, allowing you to refinance your loan at a point in the future.

Use Loan Insurance

Loan insurance a great option to reduce the cost of your loan in the future. Instead of using a high risk option, ask a traditional lender if you can finance the loan with the inclusion of loan insurance. Since you have poor credit, your insurance will be high in the beginning of the loan. However, as the size of your loan is reduced through regular payment and your credit rises, your insurance premium will continue to decrease. Even mortgage insurance is no longer required once you have paid off 20 percent of your loan. This is a great option to reduce the cost of high risk lending choices.

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