Even if you look for a loan just a few hours after you declare yourself bankrupt, you will still be able to find many lenders willing to lend to you, provided that you meet certain other requirements. You are still eligible for a car loan, a home mortgage loan and a credit card. Truth is that it is not easy to get approved but by choosing the right lender you can get a loan for people with bad credit. Though the terms won't be too advantageous, you'll still get your loan.
Approval, Terms and Risk
The financial institute or the lender keeps in mind that by offering a loan to you, much risk is on stake. That brings up the interest rate, as higher the bet, higher the rate. Though you will not be at ease with the interest rate, you will still be able to get credit even if you have a bad credit history.
A rate of interest is calculated on the basis of the general rate of interest in the country and the stakes or risk involved in that specific loan. Most of the financial institutions follow the prime rate given by the U.S. government, but they just use it as their base rate. The actual rate could be a point higher or lower than that. The prime rate is only for their esteemed customers but the ones with bad credit are given higher rates.
Base Rates
The interest rate you pay will be calculated over a base rate and a certain percentage will be added to it according to the risk. Other than the prime rate, the other base rates are the LIBOR (London Interbank Offered Rate) and the specific Treasury bill rate, which is issued by the U.S. government on bonds for a number of years. Prime rate controls the credit cards and car loans whereas; the mortgage loan rates are dictated by the other rates.
There is an addition to these rates; a percentage above the prime rate and about 10% above the LIBOR are the interest rates for people with a good credit rating. For cases of bad credit, there are more add-ons. A home equity loan carries an interest rate similar to a mortgage loan and can be obtained easily by people with bad credit.
An unsecured personal loan is given at approximately 6% above the prime rate normally, and, in case of bad credit, this rate can shoot up. Though it may sound excessive, truth is that the lender has to compensate for the risk taken by lending to someone that might not repay the money lent.
Recovering Credit
For some time you'll have to cope with high interest rates. It is not very easy or quick to rebuild your credit. There is no point in loosing hope and crying over spilt milk. The process of recovering your credit may take a couple of years, but by paying your monthly payments on time you'll gradually improve your credit score and clean your credit history.
Sarah Dinkins is an Expert Loan Consultant in the financial industry that helps people to repair their credit and get approved for home loans, unsecured personal loans, student loans, consolidation loans, car loans and other types of loans and financial products. At http://www.badcreditfinancialexperts.com/article/ she is continually adding new finance articles useful for those in need of professional advice. |
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