If you need money and have bad credit a bad credit personal loan can work. The trend we are seeing is people searching out credit cards as well so we wanted to offer some insight into the differences of these products.
While Loans Now offers solutions for both types of products we thought that we would offer our clients some insight into this. Loans Now, which does specialize in offering a bad credit personal loan, but who in the same aspect offers solutions for good credit clients and also credit card solutions has an objective viewpoint on this question. That is to say that we will only offer what we know about each product, not our specific recommendation for each one. The reason is that each individual and his or her credit or financial situation is different along with any objectives that they may have.
What “We” Hear
The first thing that people think of when discussing credit cards is the fact that you must have excellent credit to obtain one. This is not necessarily true, as most others identify obtaining a credit card with a down payment, again not always true. In today’s lending environment all credit types can obtain credit cards, using the above mentioned or, newer products which offer credit cards for bad credit and some offer credit cards for people with bad credit with no down payment.
On the other hand when discussing unsecured personal loans people seem to have the idea that they may obtain one with less than perfect credit which is correct but only to a point for some products. While other personal loan products have strict credit requirements and yet still others have the ability to get approved for those with less than perfect credit supplying loans for people with bad credit or a bad credit personal loan.
What Should You Choose?
The point of the introduction is that no matter what you chose, be it a credit card, bad credit personal loan or unsecured personal loan the most important questions you need to ask when determining which product do you need are, how am I going to use the loan? Where do I stand financially, and what products or services are out there? After reading this article and if you can understand and identify these concepts, then with a little work you should be able to make a decision that suits your own needs. Loans Now clients can find assistance in where do I stand financially using the Loans Now DTI calculator and the Know your credit tool on the website.
Often consumers are confused on why they could not obtain the loan they were seeking. They often are angered as they met the advertised minimum credit score requirement yet still they found themselves denied. The reason some are because of a calculation most lenders use to determine a consumer’s ability to borrow. This is known as DTI or Debt to Income ratio.
We will be discussing that in this article but for a quick summary, DTI or debt to income ratio calculation is your given income over one month divided by the sum of your debts. These debts are obligations listed on your credit report and include mortgages, car loans, collateralized obligations, student loans etc. To understand more as we stated above you can identify your DTI and learn more using our Loans Now DTI calculator.
Credit Cards
Credit cards are considered a revolving line of credit. What that means is that once you obtain one you can keep that credit line open and continue to use it, as long as you have available credit, and have made your payments on time consistently. Credit cards provide some great benefits if used correctly. One of those being the fact that they are revolving as opposed to one lump sum like a personal loan. You can accumulate points while making transactions that pay in the form of rewards to include cash back and travel offers.
Credit Card Score Requirements
Most credit cards do require a good to excellent credit history to acquire, but at Loans Now we have found some that are willing to offer smaller loan amounts to fair or bad credit borrowers. The credit cards which offer the best rates and lowest interest rates are given to consumers who have a credit score above 680 but that is not often guaranteed.
Most consumers obtain cards with the 620 to 680 score and are satisfied with the terms of repayment. Consumers with scores below 620 often find it harder to obtain credit cards or revolving lines of credit. We know that it is possible and often with somewhat reasonable terms. To understand more about credit you can find a quick summary on the Loans Now website in the “what is my credit type” blog post and you can identify your credit on the Know Your Credit page.
Credit Card Loan Limits
The credit card product is great for people who want to borrow smaller sums of money. Also for those who intend to use them for daily transactional purposes like purchasing groceries, fuel, and daycare. Some people would say that one of the downsides of obtaining a credit card is that you may not use that tradeline to pay for certain things. Or in other instances where the debtor does not accept them as a form of payment like a housekeeper. Another downside is the fact that for most issuers revolving credit poses the highest amount of risk. So the amount of credit ( money you can borrow) is often significantly lower than it would be if you sought out a Personal Loan or Unsecured Personal Loan.
Credit Card DTI Requirements
Your DTI or debt load is quite crucial in determining any loan but in the world of revolving credit, it is truly paramount. Since revolving lines of credit are considered one of the highest risk forms of lending second only to unsecured personal loans, even if it is personal loans for good credit or personal loans for bad credit. This means that your debt load or DTI should be less than 15-20% of your monthly income upon application. This is not to say that some lenders offer revolving lines of credit to consumers with higher debt loads. This leads us back to the point that you should understand your financial situation prior to any application. This is the Loans Now mantra and recurring theme in the Loan Discovery process.
Personal Loans
Personal loans come in a few forms. They can be collateralized or un-collateralized. If they are collateralized than that means you are offering something that the lender can take if you happen to default on the loan. The best examples of that would be auto or vehicle loans. In this instance, we will be talking about unsecured or un-collateralized personal loans. There are benefits to obtaining an unsecured personal loan or even a bad credit personal loan.
The most beneficial is the fact that you receive all of the funds at one time in one lump sum. This allows you to write checks for items as the funds are deposited in your bank account. It is proprietary how the credit agencies define or calculate your credit score so there are arguments on both sides as to if having a revolving tradeline versus an unsecured personal loan helps or hurts your score.
Most experts do agree that having at least three open lines of credit in good standing help to improve your credit score.
Unsecured Personal Loan Score Requirements
When considering an unsecured personal loans people often mistakenly think that you must have a high credit score to obtain them. This is not necessarily true since people of all credit types can obtain personal loans. In fact what we see all too often in the industry is people blindly applying for a bad credit personal loan online. When in reality they can obtain a personal loan at a reasonable rate if they just took the steps and identified where they stood financially.
The first thing people ask is who gives bad credit personal loans only to end up finding a payday loan. There are bad credit personal loan lenders who offer products which are widely accepted.
At Loans Now we have seen and assisted all types of credit profiles from consumers seeking a bad credit personal loan to consumers looking for good credit personal loans. It is not really a matter of score requirements it is a matter of finding the right lender.
Unsecured Personal Loan Limits
One of the benefits of an unsecured personal loan is that in some cases consumers are able to obtain significantly more in terms of credit than a revolving line of credit or credit card. Most unsecured personal loans are in the range of $2500 – $7,000. We have loans that can be obtained for upwards of 100K. That is not to say that everyone with any credit score has the ability to borrow that much but it is possible. People also can obtain smaller amounts down to on average $500 in some cases. This is vastly different than what most credit cards offer and is fundamental in helping obtain loans for people with bad credit.
Unsecured Personal Loan DTI Requirements
Finally, the biggest difference we see in lending between credit cards and unsecured loans or personal loans is the debt to income requirement. As we stated above with a revolving line you need to be at about a 15-20% load. In the unsecured loan arena, we have seen DTI allowances of up to 35% with the loan.
Final Thoughts
So after reading this summary what are your thoughts? Have you decided one way or another? We are not so sure as we do not know your financial situation as well as you do.
After all of the debate, we hope that the take away from this is that regardless of anything it is paramount that you know where you stand financially. This will help you make the right decision without harming your credit and losing valuable time. It will also help you in obtaining an interest rate not consistent with your financial profile just because you didn’t know where you stood.
Good and bad credit personal loans and credit cards are out there. They are available, you just need to understand the products and your situation so you make the right choice.
Loans Now has been helping people search out bad credit personal loans and identifying loans for people with bad credit for over five years now. If you still have questions or are seeking out a loan feel free to use the Loans Now Discovery process or any of the other tools located on the Loans Now website.