If you sent out a loan application to buy a home, and it was rejected by the lender, the odds are that your credit score is low. This is one of the many reasons that may prevent you from qualifying for a favourable financing solution. That being said, we’d like to talk about bad credit loans and the most important things you should know on the topic.
What Are Bad Credit Loans?
To start with, lenders are likely to decline your loan application, because you might be seen as an unreliable borrower. Still, the good news is that there are lenders that provide bad credit loans exclusively; hence, their approval criteria are significantly more lenient. To that end, most bad credit loans are facilitated by specialist lenders, and they are targeted for the borrowers who don’t meet the bank’s specifications.
What Are the Main Types of Bad Credit Home Loans?
-
Paid and Unpaid Defaults Home Loan
As you might expect, this type of loan is created for borrowers whose credit files have numerous defaults. Typically, in Australia, lenders will assess two primary types of defaults, namely paid and unpaid defaults.
What is a default? In simplest terms, a default is a record monitored on your credit file, indicating that you have an overdue account, such as a credit card bill, personal loan, phone or utility bill. In order for it to be classified as overdue, the payment should be 60 days late. It’s also considered overdue if the lender couldn’t contact you.
Also, as a rule of thumb, a default on your credit file increases the likelihood of having your loan application declined. Conventional banks and lenders are more likely to perceive that as a sign of incapability of making repayments. Nevertheless, it’s critical to analyse the status of your existing defaults. This way, you’ll avoid filing an application with a lender whose criteria don’t suit you.
-
Part 9 Debt Agreement
Furthermore, borrowers that entered a Part IX Agreement may also get bad credit loans. Considering that your current financial situation is good, you might even get the chance to qualify with an eminent lender, who is permissive when it comes to debt agreements.
Nonetheless, there are some specifications you should meet. For instance, in some situations, you may be unable to borrow more than 80 percent of the total value of the house. Plus, you should have a decent reason why you’ve entered the debt agreement. At the same time, you should have made consistent payments during the agreement.
Bear in mind, though, that these requirements may vary with every lender and situation.
-
Discharged Bankrupt Home Loans
If you were bankrupt and, at the time being, you are discharged, you can apply for discharged bankrupt home loans. The term discharged refers to the automatic process of the law that releases a person from the status of bankruptcy. As soon as that happens, you may apply for credit again. Still, the thing is that you’ll imminently have to pay a higher interest rate, as this applies to most bad credit loans.
-
Debt Consolidation Home Loans
Considering that you have more small debts, you might want to take a home consolidation loan, in order to make your debt more manageable. In Australia, many people in this situation eventually choose to roll multiple forms of unsecured debt into their mortgage, so that they would cope with a singular payment per month. Going down this path can minimise the stress associated with debt, while allowing you to enhance your cash flow.
What Should You Do to Get Approved for Bad Credit Loans?
Since non-conforming lenders are increasingly more flexible in comparison with major banks, the eligibility criteria aren’t as strict as in the case of traditional banks. To that end, most of the time, the higher the risk you pose as a borrower, the higher the interest rate you’ll be charged by the lender. Therefore, you should have realistic expectations.
However, as a rule of thumb, if you plan on borrowing less than 80 percent of the total value of the property, you might benefit from a more convenient rate. On the opposite side, if you intend to borrow more than that, if your credit history is significantly impaired, the rate you’ll be charged will be much higher.
At the same time, you should steer clear of making more negative listings on your file, so that you don’t increase the severity of your situation.
Plus, when you’re looking for lenders, make sure you pick a reliable one, such as https://badcreditloanss.net.au/. We have vast experience in the realm of bad credit loans, and we have assisted numerous Australians with financing solutions that meet their individual needs. On a final note, picking a loan that suits your current financial situation will prevent you from overcomplicating your finances; so, make a sensible choice!
