How Can Bad Credit Affect Your Loan Procedure?

How Can Bad Credit Affect Your Loan Procedure?

Need for a Loan

There are many reasons of taking a loan. Some people take a loan for business purpose when they do not wish to invest their own money; some use it as they are not financially strong for some reason while some take it for various other purposes. Now the banks also are eager to provide loan to people as they charge a good amount of interest especially for loan for a private purpose such as buying a home or a car. The interest rates of home loans and auto loans are slightly higher than business loans and education loans.

What does Bad Credit Means?

Bad credit is a situation when a person does not have a good impact on banks due to the ignored credit card bills, excessive use of credit, delayed payments, maxing your credit cards, high level of debt and some more factors are there to the list. These things matter now a day a lot. Many businesses, banks and other people judge you on the basis of your credit card score.

Affects of Bad Credit Score on Loans

A bad credit score obviously affect the availability of loan for you. Even if you provide all the documents and need a loan for a good reason your low credit card score reduce the chances of getting a loan from banks. Some of the key areas are mentioned below where a bad credit score affect the loan availability:

  • Availability of Loans: lenders and banks check your credit score before giving loan to you as they are reluctant usually to offer loans and grants to people who have a bad credit score. This is because the risk involved is higher in the case of a person who has a bad credit score than the one who have a good credit score and a reputation which increases the availability of loans.
  • Higher Interest Rates: this is worst effect of a bad credit score. Even if the lender or a bank approves the loan to a person with bad credit score they charge a higher rate of interest. This is due to the higher risk of lending loan to a person who has bad credit score.
  • Rejection of Loan Application: when you apply for a loan all the documents with the applications are submitted and checked thoroughly. If you have a bad credit score you are more likely to not get a loan and your application will be rejected.
  • Mortgage of an Asset: if you are taking an auto loan or education loan you usually do not need to mortgage an asset but if you have a bad credit score the banks are likely to mortgage an asset as a security if you are not able to pay the loan or interest on time. Banks also are strict over bad credit loans and do not give marginal time to pay interest.

There are many other drawbacks also of a bad credit score on the loans. You must maintain a good credit score for better financial backup and a good image in the eyes of business and banks.