- in Loans
In order to climb your way out of debt, the last thing you need is to be taking on more of what got you in trouble in the first place.
You may have already decided that you need to borrow money. This article should hopefully leave you with a list of questions, to ask your potential lender to ensure you get the best deal available.
Bad Credit Loans: the lowdown
Australians should only take out a bad credit cash or personal loan out of necessity. If you can borrow from family or friends, go to these sources first and outline a payment plan where you can pay them back over a pre-agreed time frame.
Taking a loan should be seen as a method of last resort. If you have a poor credit history, the rate of finance you are likely to secure will be high, which will only make it more difficult to pay off down the road.
In addition, the approval process can be drawn out and there is no guarantee that you will get approved for a personal loan.
Below, I have outlined some of the reasons why it may be prudent to obtain a loan and have listed the main features that you need to be aware of when signing up to any form of contract.
The Lending Landscape
Well the good news is, there are plently of lenders who will be willling to loan you money, IF YOU REALLY NEED IT. Be aware though, if your credit hostory is less than spotless, you are going to be paying some serious interest charges.
There is nothing wrong with borrowing money if it is absolutely vital but you have to make sure the loan fits your personal circumstances.
If you have bad credit, you are classed as a high risk prospect by the financial lending institutions, so while your options will be limited, there are still enough avenues to explore to enable you to choose from a variety of sources.
Getting personal loans when you have bad credit
The following categories are reasonable situations where you may feel that obtaining a loan is prudent. If the extra money is going to further your education or provide shelter and protection for you and your family, no one can argue that this is not reasonable.
There will be certain life events which may give rise to you needing an emergency cash injection. The most common ones are listed below, the list is not exhaustive but you should notice a pattern, all involve spending on items of necessity, not luxury.
Unexpected Life Events
Life can take all kinds of unexpected turns, which often leave you needing some financial support if you’re not in a strong fiscal position personally.
On the one hand, money is often needed for positive life occuences that were not always in a family’s immediate plans.
Did you just get into college, but can’t afford tuition, books, supplies, or other bills?
Maybe you’ve been blessed with a new baby, but have to deal with many of the sudden expenses that come along with a newborn.
There are unfortunately money needs on the more sombre side as well.Are you or your loved one facing hospital and medical bills? Perhaps you and your loved one have just gone through a painful separation or divorce, and are just starting over. You might need a little extra cash to make the transition a bit less difficult. Or maybe you’ve had a sudden and unanticipated loss in your family.
Getting personal funeral loans can help ease your woes in the saddest of circumstances, and again, bad credit should not preclude you from seeking a way to diminish your family’s financial burden.
Bad Credit Home Loans
The problem with expenses in your home is that they are often necessary at the time you can least afford it. That leaky ceiling or broken window cant be left without incurring further damage and expense, these things need to be taken care of.
If your already mortgaged up to the hilt then you may be left with little option than to seek a personal loan in order to see you through.
Remeber though, the money should be used for ESSENTIAL repairs, not frivolities that you can live without!
Assuming that you have at least some equity in your home, there are plenty of lenders who specialise in providing credit to people against the security of their home. But it is important to note, that in the event of non payment, it is possible that the house could be reposessed.
If you do intend to take out a home loan, follow these tips to reduce your debt as quickly as possible.
Debt Consolidation Loans
It is quite often the case that you have racked up debt in a variety of ways. Credit Cards, Store Cards, Personal Loans, Mortgage Debt.
Well, it is often easier to bundle all of these loans into one easier to manage package, rather than trying to pay off all of these different loans. The stress of dealing with one company is much, much easier than having to deal with 5 or 10 differnt people calling you, chasing you and harrassing you for payment.
The rate of interest on a consolidated loan willl often be more favourable than that on all your other different loans put together.
This is a situation where I do recommend taking out a loan becuase it means by doing so, you are taking responsibility for your financial situation by trying to improve your finance arrangements.
This is one of those chicken and egg situations. A car is a luxury and should be treated as such.
There are countless arguments as to why car ownership is not a necessity, but the fact remains that public transport is not always cheap either.
If you already have debt concerns, then know, you should not be buying a car in order to go cruising down the strip with your firends.
If, on the other hand, you need a car for work and public transport cannot get you there, this may be acceptable as your job will help you to extract yourself from your current debt situation.
Just try not to over extend yourself, there are a variety of acceptable cars you can buy for under $3,000 which would be ample for commuting.
Bad Credit Personal Loans with Guaranteed Approval
One of the questions that I hear most from Australians with debt issues is this "I need a loan, how can I guarantee that I get accepted". The answer is, you can't. Any loan company which will guarantee to lend you money is quite frankly not doing their due dilligence.
They would not be a responsible lender. These are not the sort of companies that you want to be getting into bed with. A good finance company will have a lending policy that they will stick to.
To give yourself the best chance of being approved:
- Show proof of a stable income
- Collect together your last 12 months payslips
- Pay off slightly more than the minimum on your outstanding credit cards each month
- Start a small savings account to show that you are a responsible borrower
So there you have it, these are just some of the reasons you may need to get yourself a personal loan. But notice, they all have one thing in common. The need for the loan is borne out of necessity not want!
Now, if you really need that loan, here is a comprehensive list of features to look out for.
Its a long list, but it pays to educate yourself on the different elements of loan financing.
Afterall, it is usually “Terms and Conditions” and the pesky “small print” which get people in trouble in the first place.
The following are the aspects of a personal loan that you should consider when comparing lenders who cater to those with low credit scores. Make sure you review them and understand each point completely so you can make a clear and accurate assessment of which one is right for you.
Maximum Loan Amount
This is the actual principal of the loan–the amount of money you can take out. These generally range from $1,000 to $20,000. An important note here: only take as much money as you need. For example, if you’re trying to buy a car or pay for some sudden business needs, only get the loan in the amount that you actually need. Depending on your credit rating, the interest rates on personal loans can range from credit card rates (already fairly high) to exorbitant to extortionary.
Approval Time Frame
This is generally not a major issue with online personal loans, since the maximum approval time is generally 5 minutes or so. However, just because you’re approved quickly does not mean that you will always get the money quickly. Generally speaking, the money will be available in your account the same day, but not always.
APR (Annual Percentage Rate)
This is the most important aspect of the loan, since it will determine how much money you have to pay back to the creditor. If the APR on a $1,000 loan is 12%, the interest on that loan will accrue at 1% of the principal (12% divided by 12 months) during the first month. This means that, on top of the principal of $1,000, you will owe the creditor another $1,000 * 1%, which is $10. So the total principal of the loan will increase to $1,010.
It’s important to note that interest rates compound on the new principal of the loan each month. Compounded interest means that you will owe interest on the $10 of interest you were assessed during the first month of the loan. In other words, during the first month the total interest added to the balance of the loan will be $10, bringing your total loan balance to $10,010. but during the second month the accrued interest will be $10.10. That extra $0.10 of interest might not seem like much, but it starts to add up, especially when APRs go to 30-50%. Take a look at the video below to learn about why lenders loan money in the first place–compound interest is a powerful tool.
Due to compound interest, if your APR on $1,000 loan is 30%, you might think your interest per year would be $300. If that were the case, after two years your balance would be $1,600, but it’s actually $1,809. If your APR is 50%, you might think your interest would be $500/year, but it ends up being more than $800/year. And for a 100% APR, the money you owe after 2 years isn’t 3.0 times what you borrowed, it’s 6.8 times. With anything over 30% APR, you should have a clear plan of exactly how you will pay the principal of the loan off within the first year after taking the loan.
Cost of Credit per $100 Loan (14 Days)
This is the average amount of interest you’ll have to pay on a loan after 14 days of receiving the money. It depends on the interest. This statistic is particularly useful for so-called payday loans, in which a lender will loan you the money today for what your paycheck will give you 14 days from now if you’re paid twice a month. For example, if your APR is 30% and you take a $100 loan, you will owe the $100 back plus $1.25 in interest. If the APR is 100%, the interest is still only $4.17–not too bad if you need money in a pinch.
However, the way payday loans companies make their money is from long term loans that go unpaid for months or even years after they issue the loan at extremely high APRs. Some payday loan companies charge as much as 615% or even 1564% interest on your loans. At 615%, you will owe more than $25 in interest on a $100, 14-day payday loan–and $65 at 1564%. This is why we recommend you only take a loan for exactly as much as you need, and no more. Every extra dollar of principal on your loan gives you higher balances to charge interest on.
Cash advances are a process by which you can take out cash from via ATM for your credit card. This can be a very convenient way to get money and keep all your debt on just a few accounts; however, the convenience sometimes causes borrowers to lose track of how much they’ve taken out. Also, although the money all costs the creditor the same amount, there are generally higher interest rates for cash advances than for regular purchases. For example, you may have a 29% APR on purchases for a credit card, but a 39% or higher APR on cash advances. You have to read the small print when taking advantage of cash advances.
Loan Cancellation Option
Many services and lenders let you cancel a loan within the first 24 hours of taking it, effectively ending the relationship between you and the creditor. This can be helpful if another, less expensive option for financing comes through at the last minute, or if you just have second thoughts about whether you actually needed the money in the first place. Make sure you know whether your creditor offers this service before taking the loan, just to be sure in case you decide that you don’t need it in the end. Just paying off a personal loan can sometimes come at a cost–particularly if you’re one of the many Australians with a low credit rating. This is because lenders who work with credit risk borrowers often offset that risk by adding processing fees for taking and paying the loan and also early payoff penalties (which are discussed more at length below.)
Multiple Loan Qualification
About half the personal loans services currently available allow you to take out multiple loans at the same time. This can be helpful if you need to top up on a loan. For example, if you’re doing a home remodeling, you may need to make one last unexpected trip to the hardware store or lumber yard for more materials. Or perhaps if you’re financing a wedding, you may realize you need to add another table or some decorations or services for the guests.
While convenient, taking multiple loans can complicate the process of paying the loans back. For example, because of compounding interest, you’ll want to pay off the balance of the oldest loan first, but if it’s from the same lender, it may be more difficult to keep track of the order in which you took the loans. For this reason, you should keep your paperwork and electronic documents for loan processing carefully organized.
Second Application Wait Time
For those lenders that allow you to take out multiple loans simultaneously, some allow you to do so on the same day. However, others may make you wait for up to 5-6 days or even more to take the second loan. Therefore, you should be clear before you take the first loan exactly how much you need to cover all your expenses. As mentioned above, you only want to take out as much as you actually need, but leaving a little cushion for unexpected extras may not be a bad idea.
For example, if you’ve decided you want to take out $500 for a weekend trip to Disneyland, you may want to take $600 total in case of events such as flat tires or hotel room upgrades. An extra 10-20% padding won’t add so much in compounded interest as to make the loan untenable, and the peace of mind knowing your expenses are covered will help you enjoy your vacation all the more.
There are so many personal loans providers available who will help those in dire credit situations, it can really help to do a comparison between them to see which ones are the most reputable, have the best features, are the most convenient, and of course which ones are the most friendly and helpful. Find out where the company you’re thinking of dealing with stands in the following guidelines before you take your loan.
Longevity in business isn’t everything, but it is an indication that the company is somewhat reliable. With all the hoopla over the state of the Australian economy, many lenders have sprung up overnight. Some are legitimately new and offer new types of services to make your experience easier or more convenient; others are just looking to make a quick buck and may pull up stakes and change names after their reputation takes a hit.
Make sure the company you get your loan from is reputable by fact checking on the points listed below.The majority of private lenders–in particular ones that operate primarily on the internet–have been around since the mid-2000s or before.
Location of Lender and Participating States
When getting customer service from your creditor, it can give you a sense of relief to know that you could physically reach their office if necessary. Some so-called Australian lenders are actually Australian in name only, but perform most of their operations overseas and offshore. Costa Rica in particular has become a nice haven of personal loans companies, due to their relaxed taxation and business incorporation policies. If you end up in a legal battle with such a company, it can be very difficult to reach a settlement and actually receive the monetary damages after a legal decision in your favor. Jurisdiction can be very difficult with international legal disputes, especially when the amounts are only in the thousands of dollars. That may be a lot of money to us, but to the courts and legal representation, it’s hardly worth persuing. This isn’t fair for anyone, let alone a person struggling in their personal finances due to poor credit rating issues.
If the lender is domestic, it pays to know how many states they operate in. For one thing, if they don’t operate in your state, you won’t be able to take the loan in the first place. For another, if you end up needing to take out another loan while travelling on business, or if you’ve taken the loan so that your family can go on vacation, you may end up having to use a different lender for the second loan. This can make repayment more complex as you struggle to determine which loan has the higher accruing interest, higher penalties, which one was taken first, and so forth.
Loan Matching Service
Many lenders are actually groups of companies, acting more as managers that connect the creditor with the borrower. This can dramatically increase the probability that your loan application will be accepted, because more lenders mean a more flexible range of policies that might match your exact situation.
The downside of this is that the company doesn’t actually provide the funds, so if a legal issue emerges as a result of the processing or procedures, the case can become much more complex as multiple stakeholders will emerge. About half of all online personal loans sites are actually loan matching services and not direct lenders per se, so make sure you ask whether it’s part of their standard operating procedures while discussing the possibility of taking the loan.
If a personal loan service actually acts as the creditor of the funds you need, they will be considered a “lending service.” As mentioned above, many of the largest personal loan outfits today don’t actually finance you directly, but connect you via a loan matching service. It behooves you to ask the creditor before making any agreements whether they are a loan matching service or a lending service.
Site encryption means that the site uses SSL security to encode the traffic sent between you and the website. You will know that the site is properly secured if the address of the website starts with “https” rather than the normal “http.” Also, modern web browsers like Firefox and Chrome will notify you when a site’s security certificate is not valid. This is key, because the security certificate helps guarantee that you’re sending your critical personal information, such as social security number, bank account information, and driver’s license, to the entity you think you’re sending it to.
It cannot be stressed too much how critical both these factors are. With the convenience of doing business, shopping, and banking online, identity theft and personal finance hacking are at all-time highs. Do your research about the company you’re working with to make sure they are legitimately taking your privacy and security seriously.
Direct Deposit – Checking Account
Does the service deposit the money directly into your bank account? Without this convenience, you may have to wait for a physical check to arrive by mail so you can deposit the money yourself at your bank or an ATM. This can add days to the time it takes to get access to your money, and most often you need the loan right away. If the loan you need is urgent (and most times it is), you’ll want to make sure the service has the option to deliver the money to your account the same day you are approved, electronically.
Some lenders operate 24 hours a day, while others may approve your loans the same day but not actually transfer the money into your account until the next day–or even the next business day. Make sure you ask if the company you’re getting your funding from has overnight deposit, so that the funds can get into your account as soon as possible once you’re approved. Again, approval time does NOT mean the time you get your money–only the amount of actual processing time for the company to review your request and make the decision as to whether they will finance your loan (at some later point, normally within 24 hours.)
Currently, only about 40% of online personal loans providers offer overnight deposit. It pays to do your homework and find out if the one you’re in negotiations with has this option. Once again, you need your money quickly–any delays makes the proposal of taking a loan of this nature less attractive.
Next Business Day Deposit
The next best thing to overnight deposit is next business day deposit. Almost all personal lenders have this option, because it is really the bare minimum a professional financier can offer. It’s nice to have a guarantee of any kind, but “next business day” can mean up to 72 hours or more if you’re requesting your loan on a Friday morning. If you’re looking to get funds for a trip that weekend or emergency financing for your small business needs, 72 hours is simply not fast enough to answer your prayers. If this is the only option for a lender and you’re in dire need, keep searching for a company that offers same day deposits with overnight service.
Apply by Phone
If you are in an area or situation where it’s not convenient to get on your laptop or PC to apply for a loan (for instance, at a remote site for a wedding or a business project), you may need the flexibility of being able to apply by phone. Phone applications can take two different forms: one is by voice, while the other is via mobile internet.
While applying by voice in a conversation with a real person at the company lending you the money provides the comfort of dealing with a human being, this is not always ideal. For one thing, unless you’ve had a successful transaction with the company in the past, they will not have your necessary documents on file, which means there is little chance you will get any kind of loan without first submitting the necessary documents. Also, vocal communication can result in errors by the human on the other end. He may fail to understand your instructions or make a mistake when entering the information into the system. Without visual confirmation of the loan details, you may fail to notice the error before it’s too late and a loan for the wrong amount has been tied to your name for eternity.
That’s why we recommend, even if you might prefer to deal with a human being when applying for your personal loan, you still use the company’s website to apply. These days, almost all mobile plans are equipped with either 3G or 4G connectivity for mobile internet data. However, there is a catch. Not all websites are mobile phone friendly. This can be especially essential if you need to follow up on your loan requests remotely, make secondary or multiple requests, or potentially need to cancel the transaction in the 24 hours before it is processed.
If you suspect it’s possible you might be in this situation, check if the lender’s website is accessible and works properly on your mobile phone–even if you are at home or the office and have a laptop or PC available.
Faxed Documents Required
Remember fax machines? One of the only sectors of the economy they are still used extensively in are the real estate, legal, and financial sectors. This is because a faxed document holds greater weight in terms of verifying the identity of the sender and the receiver, the time and date, and the original contents of the document. Although in technical terms, emailed documents offer all these benefits, when it comes to contracts representing large sums of money, fax machines are still the preferred option.
This can add a lot of hassle to a personal loan application process, for several reasons. First of all, very few people have fax machines in their homes these days. Some people even decline to get land line phone service, because mobile phone service offers all the benefits of a land line and more. Also, while there are plenty of online services that will send a fax for you from an upload, this runs the risk of security concerns, such as your personal information being intercepted and downloaded by a hacker intent on stealing your identity or otherwise taking advantage of you.
The other concern with faxes is one of quality. First of all, while you can easily take a digital photo of your documents with your phone and email them in full color to a recipient, fax machines require roll feeding, which means you have to make a Xerox copy first before transmission. This means the receiver is already getting a second generation copy of the original documents, which means a decline in quality. Emailed documents maintain the same level of quality no matter how many times they are copied or forwarded.
Second, there is no way to guarantee from the sending fax machine whether the receiving fax machine printed out a high quality scan of the documents you’re sending. In particular, fax machines have a difficult time with full color photos and lightly written signatures. The company giving you your money will certainly want copies of your driver’s license, passport, social security card, or other identifying documents. If she receives poor quality faxes or scans, she may need to ask you to send them again. This brings a level of inconvenience and loss of precious time that can be extremely frustrating and, ultimately, costly of your time and money.
Loan Application Information
A reputable personal loan company will ask you for lots of information while you apply. Some are more flexible, meaning they will provide funds for a wider range of applicants. This may seem like a really good thing on the surface–and for some people, it is. However, the more flexible a lender is, the more likely their borrowers will be to default on the loan. This means they will have to charge higher APRs than other companies. It’s best to find the company that has standards just lenient enough to accept your application, but strict enough to deny higher risk applicants.
A credit check will look into your full financial history, including how much debt and assets you have available. This is done to determine how likely you are to repay the loan. The more likely you are to repay, the lower your APR will be, saving you money in the long run.
Please note that just checking your credit can decrease your credit score, among other things. However, did you know that just three factors determine 80% of your credit score? Here they are:
Therefore, rather than borrowing money from lots of different sources, it’s advisable to stick with the best personal lender for your particular situation. Currently, about 70% of creditors will perform a formal credit check on you during your application process. The others will likely check your credit history based on other methods, such as bank statements.
18+ Years of Age
Sorry kids, pretty much all personal lenders require that you be an adult to process your loan request. Otherwise, there are just too many risks that a court of law will conclude that, being a minor, you were not fully aware of the consequences of taking a loan, and excuse you from your responsibility to repay the loan. Obviously, no creditor wants that to happen.
Australian Citizen or Permanent Resident
Almost all lenders require that the borrower be an Australian citizen or permanent resident. If not, there is simply too much risk that the person will leave the country and never pay back the loan. Being a citizen or permanent resident generally means that a person has assets in Australia they want to protect; assets which a court can take away and liquidate in pursuit of debt repayment.
Even though not all Australians drive, the driver’s license is the primary means by which companies in Australia verify the identity of their customers. You will likely be able to use a passport as an alternative.
Home Address, Phone Number, Email Address
Pretty much 100% of creditors will require the applicant have an established, permanent address during the approval review process. Without an address, they would have no way to find those who failed to repay their loans. Generally, you can establish your home address by providing bills sent to your residence with your name on them.
The same goes for phone number and email address. The lender needs to be able to contact you–after all, they’re giving you a significant amount of their money.
5 Things Most Creditors will Almost Certainly Want to Check
- Checking Account Information
- Monthly Income After Taxes
- Pay Schedule
- Current Source of Income
- Employment Duration Requirement
In order to verify your current financial standing, a company will need to be able to make inquiries on the checking account they will be crediting with your loan funds. This means, of course, that you have to have a checking account in the first place! During the verification process, they will check the deposits to your account–the amounts and dates of those deposits. This is to verify that you are currently holding down a steady job and will likely be able to make the necessary payments on the loan.
While most applicants will have a job as their source of income, some may be financed by other means. This is sometimes fine with a creditor, because they’re not too concerned about how you make your money, only how much and how often the incoming credits are for. However, about half will require that you show proof of the amount of time you’ve been employed at your current place of business, though generally as little as 30 to 90 days’ employment history will be satisfactory.
When a person files for bankruptcy, most loans (aside from student loans backed by the government) in default will be wiped off the books. For this reason, all creditors will want to avoid their borrowers declaring bankruptcy as much as possible. This is why most companies will want to check your financial history and current status before granting you the funds you desire.
Currently, about half of all online personal loan providers will refuse to grant a loan to anyone who has the potential to declare bankruptcy during the term of the loan. (The term of the loan is the total amount of time it will be outstanding before it must be repaid.)
This is one of the most crucial criteria to look into when deciding where to apply for your personal loan, in particular for three counts: the maximum term of the loan, penalties for early payment, and extensions and renewals policies.
Almost all lenders will allow you to pay by various methods, including electronically. Furthermore, almost all lenders will have penalties for late fees. For these policies, there’s no need to compare or ask–they are all standard.
Maximum Term of Loan
You might think the more time you have to pay off a loan, the better. However, in fact, due to compound interest and the generally high interest rates involved with personal loans, a lender having a strict timeline for repayment is actually a good thing that will save you money in the end, so long as you pay them back on time.
However, if there is any chance you will not be able to repay them on time, it’s best you search for the lender with a combination of the lowest APR and longest term offers. Penalties on late payments are one reason. Even more importantly, those who fail to repay on time are almost always immediately sent to collection agencies. These agencies will pay the creditor, meaning that you will then be responsible to them for repayment. Collection agencies are notorious for using tactics bordering on abuse for borrowers who are in default. They harass borrowers night and day with phone calls and letters, and will take any legal action necessary to get back what you owe them.
If you are currently being harassed by a collection agency, here’s how to deal with it:
Furthermore, the rules of what you owe them will not be in accordance to those you entered into under the agreement with the original lender, but rather according to the collection agency’s own guidelines. This can include incredibly high APRs that can be many times higher than those offered by the original company as well as expensive penalties and fees.
Most payday loans companies will have maximum loan terms reflecting the payment cycle of your business, somewhere in the range of 14 to 16 days. Don’t mess around with these loans–pay them back on time! The interest rates you’ll be paying are already high enough. You don’t want higher APRs and fees on top of them.
Other personal lenders are in the 90 to 100 days range. These lenders often have APRs in the 30-100% range, which means you’ll be paying about $10-30 in interest on every loan for $100.
Still others have terms up to 3 years or more. These companies are looking for long term returns on your loan, so interest rates can be a bit lower; however, they will often still take on loans for people with bad credit. For people in this category, APRs can still mean that you end up paying back $300, $600, or even $1,000 on a $100 loan over the course of repayment.
No Penalty for Early Payment
It might seem strange that a lender would want to penalize borrowers for paying back the money owed before the term of the loan ends. However, if you think in terms of the money they will make, it makes perfect sense. The goal of the lender is to make as much interest off the borrower as possible. They want you to remain indebted to them for as long as possible (within reason, according to the probability you will pay them back in the end.) Currently, about 30% of personal lenders will charge you a penalty if you pay back the full balance of the loan earlier than the terms of the agreement specify, so be sure to ask about this before you take on debt from them.
Some companies allow you to extend the term of the loan you’ve taken when you run into financial hardship and can’t afford to pay it back. This is in their best interest, again, because it allows them to keep charging you more compound interest over a longer period of time. They want to keep you as a customer for as long as possible, to earn money on the loans they offer.
In today’s market, about 40% of companies will allow you to extend the term of your loan when you can’t afford to pay it back on time. While this can protect you from potentially having the loan sold to a collection agency that will then harass you, remember that an extension will only delay the loan further, meaning you will end up owing more in the end.