WHAT IS A BAD CREDIT PERSONAL LOAN?

WHAT IS A BAD CREDIT PERSONAL LOAN?

A BAD CREDIT PERSONAL LOAN IS A TYPE OF PERSONAL LOAN THAT IS MARKETED TO PEOPLE WITH BAD CREDIT. PEOPLE NORMALLY GET BAD CREDIT PERSONAL LOANS FOR DEBT CONSOLIDATION, TO PAY OFF UNEXPECTED EXPENSES, MAKE A LARGE PURCHASE, OR TO FIX A HOME OR CAR. BAD CREDIT USUALLY IS A FICO SCORE BELOW 640. FICO IS THE MAIN SCORING SYSTEM FOR CONSUMER CREDIT, WITH CREDIT SCORE RANGES DEFINED AS:

EXCEPTIONAL (800 TO 850)

VERY GOOD (740 TO 799)

GOOD (670 TO 739)

FAIR (580 TO 669)

VERY POOR (300 TO 579)

WHILE CREDIT SCORE RANGES CAN GO AS LOW AS 300, YOU TYPICALLY NEED AT LEAST A FICO SCORE OF 600 TO QUALIFY FOR A BAD CREDIT LOAN. EACH LENDER WILL LOOK AT YOUR SCORE TO DETERMINE WHAT LEVEL OF RISK IT IS WILLING TO BEAR.

IF YOU ARE ABLE TO QUALIFY FOR A LOAN DESPITE HAVING BAD CREDIT, YOU MAY HAVE TO MAKE A LARGER DOWN PAYMENT AND PAY HIGHER INTEREST RATES FOR THE LOAN.

BAD CREDIT LOANS TYPICALLY HAVE HIGHER INTEREST RATES AND SHORTER LOAN TERMS THAN LOANS OFFERED TO PEOPLE WITH GOOD CREDIT. STANDARD BAD CREDIT LOAN TERMS ARE TWO TO FIVE YEARS WITH AN AVERAGE ANNUAL PERCENTAGE RATE OF 25 PERCENT, ACCORDING TO BANKRATE. IN COMPARISON, PERSONAL LOANS FOR THOSE WITH GOOD CREDIT TYPICALLY HAVE TERM LENGTHS FROM ONE TO SEVEN YEARS AND AN AVERAGE APR OF 4.29 PERCENT.

IF YOU TAKE OUT A BAD CREDIT LOAN IN THE AMOUNT OF $10,000 WITH A TYPICAL TERM OF THREE YEARS AND A 25 PERCENT APR, YOUR MONTHLY PAYMENT WOULD BE $397.60. THE TOTAL INTEREST PAID ON THE LOAN WOULD BE $4,313.14.

FOR COMPARISON, IF YOU HAVE GOOD CREDIT AND CAN QUALIFY FOR 4.29 PERCENT APR ON A PERSONAL LOAN FOR $10,000 FOR THREE YEARS, YOUR MONTHLY PAYMENT WOULD BE $296.53. 

YOU WOULD PAY $675.14 IN INTEREST. BY HAVING GOOD CREDIT, AND BEING ELIGIBLE FOR AN INTEREST RATE OF 4.29 PERCENT VERSUS 25 PERCENT, YOU WILL SAVE A TOTAL OF $3,638 IN INTEREST.