Possessing a bad credit score is undoubtedly a cause for stress and can hamper your chances of getting approved when you apply for a loan. If one completely relies on his/her pay check in order to cater to the basic expenses of the month including paying for rent, electricity, food, water and transport, then a sudden need for extra cash due to an emergency will create a situation of the 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.
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 in order to fund you. It is true that most people come to direct lenders in order to cater to their financial requirement. However, over time, people who are more stable may choose to borrow funds from them in order to improve their credit ratings.
This helps them get funded from traditional lenders in the future who offer lower rates of interest. Borrowers may choose to opt for a payday loan in order to improve their credit rating, or an installment loan from a direct lender. Installment loans from banks are long term ones, unlike installment loans from direct lenders that are short term and required to be paid back over a few months. Each time a part of the loan is repaid, the credit score sees an improvement.
If one is in a decent financial position but has a poor credit history, he/she can avail a short term loan from a direct lender since traditional lenders like banks may still not be willing to fund a faulty credit rating borrower, often termed as “high risk borrowers”. Those who are certain about being able to pay back their debt in lump-sum can choose to go for a payday loan which needs to be paid in whole on the next consecutive pay date. However, if one wants a little less stress on the shoulders when it comes to paying back their debt, a monthly installment loan can make for a great option.
By helping increase credit ratings, these loans can lead borrowers to get better rates in the future.