Looking out for a loan or a credit is the first thing that comes to the mind when stuck in a financial hiccup. However, securing a loan might not be the same for everyone. Since the lending institutes look for a thorough check on credit history and scores, it could be troublesome for few. Particularly, for the people who are struggling with a bad credit score.
Perhaps people often turn to online lending or credit portals for help. While choosing the best online installment loans for bad credit score holders seems a good option. It also means that borrowers need to be extra careful when borrowing. Just as there are legit lenders, there are various shams as well.
So, How to know Which Installment Loans Online for Bad Credit are the Legit ones?
For starters, if any online portal says that they do not go through any credit check, it is a red flag. No lender would ever give their money without assuring that the borrower can repay the loan. It means that no credit check loans are not what they seem. Perhaps, the lenders would use other means to assess the creditworthiness of the borrower.
The worthiness for availing a loan depends on various other factors besides the credit score. Usually, these factors come under soft credit checks and not necessarily affect the score with the authorities, such as Experian, of the applicant.
However, a void of proper information about online installment loans also leads many borrowers to fall for sham schemes. So, in light of such incidents, it becomes all the more important to keep a check on some common mistakes.
Some Common Mistakes to Avoid
Besides being an easy option for bad credit score holders, online installment loans are also a better option over payday loans. The reason being, the borrower gets to pay the debt in parts over a defined period of time. However, this also poses a threat to the borrower, if they are not aware of the legit practices of the finance sector. For instance, a borrower with a bad credit score may have to pay a higher interest.
It also means that the borrower needs to be more careful, particularly when availing online installment loans for bad credit. Taking note of the mistakes that others make may help understand the precautions that borrowers must take. A few of the common ones are listed below.
1. Taking note of state laws
The rules that apply to the leading financial institutes are not the same as those with online money lenders. Particularly, the lenders that offer loans with bad credit have a separate set of laws governing their operations. A majority of lenders do not follow the same principles as that with the mainstream institutes. In the process, the set of laws also varies from state to state.
So, when looking for an online installment loan, the applicant must confirm the laws in their respective state. For instance, in every state, there are some limitations to sharing the information of the applicant with other lenders. While some allow the sale of this information, some do not allow it at all. However, it is the borrower who needs to ensure with whom they wish to share their information. After all, most of the online portals help the lenders and borrowers to communicate but do not offer any debts on their own.
2. Assessing the capacity to repay
This one’s the biggest possible blunder that any borrower could make. The capacity to repay depends on a number of factors including income, expenses, and other debts. Besides, the future income prospects also make an important contribution to the assessment. Surely, if the borrower misses out on any of these factors to include when applying for a loan, they may struggle when it’s time to make the repayments.
Evidently, the lending agencies also make a note of these factors when offering a loan. Therefore, the borrowers should assess how much loan they need and can easily repay in time. Failing to which they may have to face further decretion in their credit ratings. Thus, reducing their chances for any future loans.
3. Ignoring the rate of interest
Another common mistake that most of the online borrowers commit is to ignore the rate of interest. Although, online installment loans do not offer an annual rate but charge a flat interest, ignoring it may lead to penalties. The reason why these lenders do not charge annual rates of interest is the tenure of the loan, which is not more than a few months tops.
However, the rate they charge still makes a difference to the repayment that is due. As already mentioned, usually the interest charged by online lenders particularly for applicants with bad credit scores is pretty high, the due installments are also higher than the ordinary ones. But, depending on the duration of the loan, and the number of installments, the repayment amount can be lowered.
Believing that there won’t be any credit checks when applying for online installment loans might be inappropriate. Simply put, the lenders are at a higher risk of losing their money since there is no collateral involved in the process. Therefore, lenders often charge higher rates of interest. Likewise the borrowers also need to take extra care when they are applying for a loan online. Particularly, when they are already suffering a low credit score.
The illegitimate ones will always try to make the most sound offers to the borrowers. After all, their sole purpose is to extract the personal information of the applicant which they can sell out to other parties. In turn, this can further jeopardize the financial situation of the borrower. The aforementioned mistakes may help avoid such pitfalls to some extent. But, they are still insufficient, as the sham schemes never remain the same. They are like shape-shifters and only being vigilant to such schemes can help avoid them completely. Only a legit broker or agent can help cope with the financial crisis, even with a bad credit history.