Possessing a bad credit score is a cause for stress and can hamper your chances of getting approved when you apply for a loan. If someone relies on their paycheck to cover monthly expenses—rent, electricity, food, water, and transport—a sudden emergency expense will create a need for extra money.
What Do You Do In Such a Situation?
The first option is to approach a friend or a family who may be able to lend some amount of money, but not everybody can afford that either. If the expense requires a few hundred or thousand dollars, then it may be difficult even for a close one to be able to lend that much.
The next option is to get in touch with a lender and due to the lower rates of interest compared to direct lenders, traditional lenders are often preferred. However, the conditions of approval for a loan are very stringent with them, and a bad credit holder will most likely not be approved.
Alternative lenders are another option, although their interest rates may be higher. They may also have more lenient approval criteria, as they are less concerned with credit scores. Ultimately, it is important to research all options before selecting a lender.
Why Applying With a Direct Lender Can Be Beneficial
The advantage of applying with a direct lender is the fact that most of them do not look into your credit score to fund you. It is true that most people come to direct lenders to cater to their financial requirements. But, over time, people who are more stable may choose to borrow funds from them to improve their credit ratings.
This helps them get funding from traditional lenders in the future. These lenders offer lower interest rates. Borrowers may choose to opt for a payday loan to improve their credit rating or an installment loan from a direct lender. Installment loans from banks are long term ones. In contrast, installment loans from direct lenders are short term. They must be paid back over a few months. Each time a part of the loan is repaid, the credit score sees an improvement.
If someone has decent finances but poor credit, direct lenders may offer short-term loans. Traditional lenders, like banks, may still avoid funding those with poor credit. They are often called “high-risk borrowers”. If you are certain you can pay back your debt in a lump-sum, you can choose a payday loan. You need to pay it in full on your next consecutive pay date. But, if one wants less stress on the shoulders when paying back their debt, a monthly installment loan can be a great option.
By helping increase credit ratings, these loans can lead borrowers to get better rates in the future.