How to Get Long-Term Loans for Bad Credit?

Most people assume that bad credit is an indication of serious financial trouble. A bad credit need not essentially be a financial crisis but rather a poor financial management. It could be a result of not understanding the importance of having a good credit score.

You have a poor credit and in need of a huge amount of money. With that scenario, applying for a long-term loan could appear to be a challenging task. It adds to more trouble if the application is rejected as it would further harm your credit score. Hence, getting approval for a long-term loan with bad credit is vital in order to keep your credit score intact.

What Is a Bad Credit?

A bad credit history or credit score is a resultant of poor management of your credit. It could be due to any of the following reasons

• Late payments on your loans and credit cards
• If you have missed your payments on your loans and credit cards
• Foreclosure
• Written-off or settled account
• Too many hard enquiries

A bad credit puts you in the bad book of the creditors and any future loan application is turned down due to the above reasons.

What is a long-term loan?

Any form of loan that is usually paid off more than 3 years can be called a long-term loan. Most of the long-term loans are secured as it will have longer tenure and the lenders want the surety of repayment. A car loan, home loan and personal loan are some of the examples of long-term loans. A personal loan could be both a long and short-term loan depending on the choice of the borrower.

The lenders allow you to prepay the long-term loans due to its long tenure. This could lower the borrower’s debt burden and also enable the lenders to collect the money quickly.

Long-term loans for bad credit

Now let us look at what are the long-term loans can be availed instantly with guaranteed approval for people with bad credit.

Mortgage Loans

You can get a quick long-term loan that are instantly approved by pledging your assets even with a bad credit score. As you mortgage your property, the lenders may be flexible in terms of eligibility criteria and sanction the loan that you need. The loan can be used for purposes like buying a real estate property or building a house etc.

The interest rates may be slightly higher as you have a bad credit score. However, this is one of the easiest ways through which you can get funds for your huge needs. The tenure on this type of long-term loan can be up to 30 years.

Long-term business loans

This type of loan is usually obtained by securing the collateral of the company. The loan can be used for various purposes like expanding your business operation, increase the productivity of your business etc.

With a bad credit, you should be open to unattractive terms on these loans. Start-ups might find it difficult to obtain this type of loan as it would require a long credit history and collateral of the company.

Education Loans

This is another long-term loan that can only be used for study purposes. You must be a student to avail this loan. People with bad credit might require a guarantor or collateral to get this type of loan. The repayment starts after completing your education and is typically in equated monthly instalments spread over a long period of time chosen by the borrower.

Getting a Long-term loans for bad credit

A long-term loan for individuals with poor credit can be obtained mostly by holding the security. The lenders want a surety in case of potential defaults. when it comes to interest rates, it is usually slightly higher for people with bad credit.

Getting a co-applicant could be another best option that could work for you if you have bad credit. In this case, the credit history of the co-applicant will be considered in the loan and you can get a long-term loan at better terms with instant approval.

Finally, if your application is being rejected due to bad credit, you can approach your current lender with whom you have a loan account and meet them in person and negotiate with them for a loan with the promise of consistent repayment.

How to Improve Your Bad Credit?

One cannot improve their bad credit overnight. Having bad credit is not the end. One can improve the credit score by following the steps given below.

1. Paying of your old debt

In case you have a “settled” account – where you have only paid partial amount of your debt or “written off” account – you did not pay your debt at all and the bank has considered it as a bad debt and conveyed the same to the credit bureau, you need to settle those accounts. If you do this, it will boost your credit score.

2. Keep your credit balances low

Make sure that you don’t exceed more than 50 % of your credit limit. This helps you to keep your credit utilization ratio (the proportion between your actual spending and your credit limit) at a lower rate and has a positive impact on your score. For example, if your credit limit is Rs. 1 lakh, make sure that you do not exceed a monthly bill of more than Rs. 50,000. A bigger credit utilisation ratio implies lack of spending discipline.

Remember to pay your dues in full rather than paying the minimum amount for your credit cards.

3. Apply for new accounts only when needed

Make sure that you don’t open too many new credit accounts. Every time you apply for credit (whether a loan or credit card) it results in an enquiry by lenders. Multiple enquiries in your credit report reflect that you are ‘hungry’ for credit and may not be able to fulfil your debt obligations.