Are there any chances to find loans for people with poor credit? Bad credit is something that is extremely difficult to get rid of. Poor credit scores can arise due to loads of reasons, there might be sudden expenses for which the debtor had to take loans and he could not repay them back.
Maybe, a sudden job loss might have meant that the previous credit card dues have remained unpaid. At other times, it just might have been mismanagement of finances. Whatever the reason might be, does that mean a poor credit score will make someone ineligible to apply for a loan ever? Not at all. Some loans for people with poor credit are still available. One just needs to look at the right place.
How to Get Loans for People with Poor Credit?
There are many poor credit loans online companies that give money to people even if they have very poor credit. To start with, as start ups, they understand that any number of things can go wrong which might lead to poor credit.
The process of getting loans with poor credit approved with these companies is quite simple. Most of the times, the process is completed in less than half a day. One simply has to fill up an online form. In the second step, some documents have to be provided to prove that the person is employed at the moment. After a few formalities, the money is transferred to the designated bank account, no questions asked.
One can simply get easy cash for the moment and get their pressing financial problems solved for the time being. PersonalMoneyService.com is one such websites that gives poor credit loans online. Another online loan lender is SpringLeaf Financial. They have been working for quite a few years and have helped lots of people get out of their bad credit situation. PersonalLoans.com is also a valid and trusted website for finding loans with poor credit approved in record time.
The logical question that arises is that how are these companies functioning with people when they know there is a chance that they might not get their money back?
The answer is that most of these loans are short term loans that have competitive interest rates. The loan amounts are not that huge and can be repaid. Payday loans are one such kind of loans. Most of the time, payday loan lenders know that the debtor is sure to pay them back just because they do not want their interest rates rising. At other times, it is also possible that some people just treat these loans as a way of salvaging their credit history somewhat before they apply for a bigger loan later. Chances of that application for poor credit personal loan getting approved are much higher, if the creditors see that the previous loans have been duly paid off.
Loans for people with poor credit are also provided by certain local banks. In a close knit community, or in suburban areas, it is far easier to come across banks that have their own loan policies and give loans to people with bad credit.
On the other hand, most major financial institutions are also opting for unsecured credits because being in the financial sector, they are aware of the inflation rates and can understand the scenario quite well regarding why people are opting for loans for people with poor credit.
Granted that some of these loans might have high interest, but it is something that a debtor just has to deal with if he is looking at the larger picture. Moreover, these poor credit loan amounts are not huge, so even combined with the interest, it mostly comes to manageable amounts and can slowly improve the credit over time.
What is a Lender Credit?
In the past, it used to be quite common for loan officers to be paid two times for making a single loan. Using the ‘out of pockets’ mortgage points, they charged the borrower directly and also getting compensation from the giving mortgage lender, via stop spread premium.
Borrower-Paid versus Lender-Paid Compensation
These days, loan lenders have to select one of the compensation types either borrower or lender. Using lender-paid compensation, loan lender provides a loan originator with X percent of the loan amount as commission. A mortgage with lender-paid compensation will come with a higher-than-market interest rate, all else being equal.
Example of a lender credit:
Loan type: 30-year fixed
Par rate: 3.5%
Rate with lender-paid compensation: 3.75%
Rate with lender-paid compensation and lender credit: 4%
In this scenario the borrower will qualify for a par mortgage rate of 3.5%. But they are offered a rate of 4%, which allows the loan originator to be paid for handling the loan, and provides the borrower with a credit toward their closing costs.
The loan originator’s lender-paid compensation may have pushed the interest rate up to 3.75%, but there are still closing costs to consider. They may bump the interest rate further to 4%, using a “lender credit” to cover those costs so the borrower can refinance for “free.” This is known as a no closing cost loan.
In other words, the loan originator increases the interest rate two times. Once for their commission, and a second time to cover closing costs.
On the Good Faith Estimate, you should see a line detailing the lender credit that says, “this credit reduces your settlement charges.” It’s a shame it doesn’t also say that it “increases your rate.” However, what can you do?
The benefit is avoiding out-of-pocket expenses, which is important if a borrower doesn’t have a lot of extra cash on hand, or simply doesn’t want to spend it on refinancing their mortgage.
It also makes sense if the interest rate is pretty similar to one where the borrower must pay both the closing costs and commission.
For instance, there may be a situation where the mortgage rate is 3.5% with the borrower paying all the closing costs and commission, as opposed to 3.75% with all fees paid thanks to the borrower receiving a lender credit.
They can still offset some (or all) of their closing costs with a lender credit, but that too will come with a higher interest rate. However, the credit can’t be used to cover loan originator compensation.
If you go with borrower-paid compensation and don’t want to pay for it out-of-pocket, you can use seller contributions to cover their commission (since it’s your money) and a lender credit for other closing costs.
Which Is the Better Deal?
If you plan to stay in the home for a long period of time, it’s normal to pay for your closing costs out-of-pocket and even pay for a lower rate via discount points. You can save a lot in interest long-term by going with a lower rate. If you plan to move or refinance in a relatively short period of time, a loan with a lender credit may be the best deal.
As a rule of thumb, those looking to aggressively pay down their mortgage will not want to use a lender credit, while those who want to keep more cash on hand should consider one.