Thanks to the economic crises of recent years, the effort required to secure a loan is greater than ever. Most people have a less-than-perfect credit history anyway, but while traditional lenders, like banks, have shied away from lending to bad credit borrowers, alternative sources, like private party lenders, have become popular.
There are advantages to seeking loans from these modern alternatives to banks and credit unions. Not least is the fact that getting loan approval with bad credit is no longer a concern. However, interest rates can be high, and in many cases the loan sums available are limited.
But just how does this option work when seeking a personal loan? Should the normal channels be completely ruled out before seeking this avenue? How exactly does this option benefit bad credit borrowers?
What Are Private Party Lenders?
The difficulty that bad credit borrowers can have in securing a loan means an alternative to financial institutions is needed. This is where private party lenders offer a huge advantage over other loan sources. Not least is that fact that strict lending policies are avoided.
Unlike loans from institutions and firms, these loans are granted between individuals. The reason loan approval with bad credit is so much more possible is that the terms of the deal are agreed between individuals. So for bad credit borrowers, this can be the most plausible route to vital finances.
An applicant would advertise a personal loan deal on a lending site, and await offers from individuals willing to take on the risks involved. All that is needed is to choose the best offer. However, while this loan option provides an opportunity to those who might otherwise have none, there are compromises to accept.
Typical Terms to Expect
Getting a loan through private party lenders is one thing, but securing the necessary funds on affordable terms is another. For all bad credit borrowers, the only hope of getting a green light on a loan application is to accept less than perfect terms. Compromises have to be accepted.
For example, is it to be expected that the interest rate charged on the deal will be higher than can be secured under normal circumstances. The key to getting a good loan is to agree a rate that is lower than a bank might charge. Once securing approval with bad credit, the benefits can be enjoyed.
Unlike financial institutions that tend to dictate terms, in this case the borrower has a keen say. This means competitive interest rates can be secured, however, be sure to state the agreed terms of the personal loan clearly before anything is signed. Also, providing necessary documentation to prove income and employment terms is essential.
Private Lender Options
Normally, private party lenders are found online through dedicated websites but there are other types of lenders to consider too. The most obvious is a family member or friend, someone who is not connected to any lending institution. In this case, the lender does not usually seek to make a profit, but that depends on the terms of the loan agreement.
Another option is a company loan from your own employer. This is where an employer agrees to lend the required sum on the basis that the borrower will continue to be employed by them for at least the term of the loan. Getting approval with bad credit is just a formality, since the income source is guaranteed. The employer simply deducts the repayments from each paycheck.
Whatever the source – by website, family member or employer – the personal loan is off the credit radar. This means your credit record is not affected, even when repaying the loan fully, the low credit score will not be improved at all.