Bad Credit Loanswhat Factors Determine your Interest Rate

Get a loan with bad credit.Don’t you dig that?Whenever the credit rating of a person or business is low,getting a loan is rather difficult.However,their seem to be one way out.And that is a bad credit loan,a type of loan given to borrowers with a poor credit rating.

Securing a bad credit loan is not as easy as telling a story,in as much as big financial institutions are really not willing to do so.Come to think of it .You were a big office paper merchant in a big metropolitan city and a client owning you $3,550 came around to request for fresh stock amounting to $448 additionally.I bet you may not be able to grant the request.
Your thought,like any businessman,may be if you should allow two or more customers to deal with you this way,then your business may be on the way down the drain.

However,this issue presents two perspectives.One,if the customer is creditworthy,and has a collateral like a house to offer ,you will be obliged to heed the request.This is a secured bad credit loan.Two,should the customer be without a collateral to back his demand,you may have to drop him by the way side,since he constitute a great risk to your business.This is a non-secured bad credit loan.Whichever one is chosen,the only benefit of the lending institution is the interest rate.

The interest or extra cash charged for using a bad credit loan is of utmost importance to the lending institution,because it makes the offer a business transaction.What then are the factors that determines the interest rate charged by lending institutions in these cases :

1.The first and perhaps the uppermost factor is your credit rating or score.What is your credit score?Your updated credit report will avail the lender the opportunity to know.The US average is 692.If you rank above this figure,say 720,you are a good candidate for the loan and the interest to be charged will be fair to you,since your credit rating has defned you to be a good manager of funds.Again,if you score below the average,say 650,a lot of discussion and further rubrics are necessary before you can be considered.And you should expect a much higher interest rate than the previous borrower.

2.Your openness or honesty of purpose with the lender,if strong enough may be able to close the sale if possible.Give a legitimate reason why you seek the loan.Catch his attention without frowning your face.

3.What does your employment history look like?One thing that could worry a lender is a gap in your work history.If you don’t understand it is important to keep connecting your jobs and career transitions,then you are missing out.Lenders will surely take you to task on the issue of gaps if any.

4.How stable is your income?If everything else is left alone,then the regularity of your income is a sign of some financial stability and could be used as a yardstick to determine whether you can repay loan or not.The interest rate to be charged will also take note of this.

5.Your current monthly debt is another factor to determining whether you merit the loan or not.A common calculation that is done is what is called debt-to-income ratio(DTI).This is a ratio that compares the amount of your debt(excluding mortgage or rent payment) to your income.The ratio is best figured on a monthly basis.For example,if your monthly take home pay is $2,400 and you pay $600 per month in debt repayment for loans and credit cards,your debt-to-income ratio is 25 percent($600/$2,400=0.25).

6.Another factor is the amount of money you have in your savings account.Your savings is another point to determine if you are a spendthrift or a careful spender.It could also be used as a collateral for a loan.

7.What type of property do you want to purchase?Is it a condo,apartment, villa,or branded residence?This rubric will concern you only if you are using the proposed bad credit loan to plan a mortgage.

8.What is the value of the property you want to purchase?By referring your details to the Federal Home Loan Mortgage Corporation(FHLMC),also known as Freddie Mac.,then a comprehensive analysis could be done to obtain the appropriate value.

9.The value of your down payment for your choice property is yet another factor to be considered by the lender in giving you an offer of loan.Your source for the down payment may be your savings over time,or another secured loan from somewhere else.

10.The last but not the least concerns whether you pay your rent and utility bills on time.If you’re concerned and consistent in paying the two,then it is justified to suggest that you will be forthcoming with loan repayment as at when due.Your lender could be intrigued to score you high on this point.And so,your interest rate could be somehow low.

Any lender whatsoever knows that the main reason why anyone would have a bad credit is that the person in question has not been fulfilling the obligation with respect to repayment plans.To offer such a person a bad credit loan may be an additional disaster for him or her and for the isuing organization.However,if it will ever be done at all,then a clear rubric is necessary.The rubrics chosen are the factors for determining the interest rate on the bad credit loan to be given,and these include credit score,honesty,employment history,income stability,DTI,level of savings,property to purchase,value of property to purchase,downpayment value,and the customer’s attitude to paying rents and utility bills.The lender has the express right to determine whether the borrower is qualified or not based on these rubrics.