The ABCs of Bad Credit Lending

A Bad Credit Lender is any money lender that specializes in difficult to fund loans. These might include money loans to borrowers with poor credit, low FICO scores and little to no assets/equity. Individuals with bad credit may find it difficult, if not impossible, to obtain a loan from a bank or other financial institution. For borrowers who do not qualify for a bank loan, one lending option is a private loan, often reffered to as a hard money loan or bad credit loan.

Because the borrower has a shakier track record with paying back their financial obligations and/or has less economic resources available to them, they carry a greater risk for defaulting on the loan. For these reasons, a hard money or bad credit lender charges a higher annual percentage rate and up front points. Bad credit lenders charge anywhere from 11%-16% plus 1 to 10 points. Lending amounts will vary by lender and by state.

Borrowers should only apply for a bad credit loan after they have unsuccessfully applied for a financial loan from several financial institutions. Due to the high percent rate of a bad credit loan, borrowers should structure their hard money loans so that they do not exceed 12 to 18 months. The goal for a borrower in this situation is to rebuild their credit during this time (borrowers are not penalized by credit bureaus if they miss payments etc.). With diligence and work, hopefully the borrower can now refinance their loan at the end of their loan term and obtain a subprime loan. This way, the borrower is on their way to reestablishing their financial future.

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