As the United States becomes a more debt-based society, many people let their credit scores descend below what is normally acceptable for lenders. It doesn't matter the reason, but once your credit score drops below 600 it can be difficult to get decent interest rates for homes and cars. People with bad credit, those below 400, may find it difficult to even get a loan, but there are options.
When your clunker is on its last legs and spends more time with the mechanic than on the road, it may be time to seek a new or used car and an auto loan. Car dealerships often work with several lenders that accept varying degrees of risky credit scores, but will often increase the down payment and interest rate, causing you to pay more than those with better credit. For credit scores below 500, you may need a co-signer on the loan for the lender to accept the risk. You can also contact banks or credit unions directly seeking an auto loan, as they tend to look more at the person than just the credit rating. If your credit is so bad, 400 or below, there is likely little or no chance to getting a regular car loan without a massive down payment and odds are the interest rates will be through the roof. There are "buy here, pay here" dealerships that often offer older and lesser quality cars, but base their loans on your income than on your credit score. You purchase the car from the dealer and also pay the dealer directly for the car. The interest rates are often high, but for some it is the only option.
If you are tired of renting and want to buy a home, you likely will need a loan. For those with moderately bad credit, banks or credit unions often have loans available at slightly higher fixed interest rates or with an interest rate that shifts with the financial state of the country. These variable interest rates can come back to bite you if they suddenly and dramatically increase, creating a much higher payment. This is one of the reasons for the current flood of foreclosures. Federal programs such as the United States Department of Agriculture Rural Development loan. The federal government will guarantee the home loan amount for those who qualify. This program offers no or low down payments and accept variety of credit scores. For those who cannot find any alternative, there is also rent-to-own housing. It is where a portion of your rent goes into an account for an eventual down payment on the home. If you are able to amass a 15 percent to 20 percent down payment, there is usually little trouble getting a loan as long as you met the income guidelines.
Personal and Payday Loans
Personal loans are perhaps the most difficult loans to obtain for people with bad credit because you often need some kind of collateral to qualify. If you own a home, you can go for a second mortgage. If you own your car, you can refinance it through a bank or title loan business. Be careful, because defaulting on one of these loans can cause you to lose your collateral. For short-term financial needs, there payday and installment loan businesses. They often loan anywhere from $100 to $2,000 based solely on your income and forgo any credit check. These loans have come under state and federal scrutiny for having interest rates as high as 400 percent to 500 percent and predatory lending practices. These loans should only be used as a last resort and for short-term loan needs.