LOANS FOR POOR CREDIT

Loan or lending in United States has a long history, but the new era of institutionalized lending started in 1800s. This was due to rise of home ownership in the lower socio-economic classes. With the shift from agrarian to industrial society the social environment changed. Now common people aspired for better standard of living. People started spending on consumer goods. Average American had less resource to uplift their financial position and this necessitated growth of loans for poor credit. People wanted loans to start their small business or to consolidate their smaller debts.

Government stepped out and founded the Federal Home Loan Bank, which we can regard as modern type of loan system. Here the borrower could pay his loan back over time, instead of short term. As it was earlier under balloon payment system in which a large lump sum was paid at the end of the repayment schedule. The purpose of federal Home Loan bank was to enable local financial institutions to sanction easy home loans and mortgages to lower income groups and increase opportunities of success among average and lower income classes. After 1970s, with the change in banking regulations a great deal of transformation in loan sector took place. Earlier savings and loan were very much associated with each other, but now specialized financial section looks after it.

Loans for poor credit provide opportunity for consumer to receive loans despite there poor financial history, that is, repeated non payment in some precedent borrowings or no asset. Most creditors wants to see consumer’s employment history and proof of current employment, this is done through FICO score. Typically, an individual having six hundred or higher gets loan without down payment and those below this scale has to usually provide twenty to thirty per cent of the total amount as a down payment. Other to it, borrower has to pay higher rate of interest. This is due to lender’s risk involved. Students having bad credit could also get loans. There are several government as well as non-government institutions which sponsor loans to student. These loans are of two types – subsidized and unsubsidized; government pays the accruing interest on the loan of subsidized form. Some student friendly institutions are Federal Stafford Loans, Perkins Loans, Pell Grants etc.

Remember taking loan is a liability, making payment on time or paying back the loan amount is your duty. Legal action could be taken against the defaulter, if s/he is not able to repay within due time. So, an applicant for loan should enquiry various banks and gather information about their interest rates as well as there payment schedule before choosing. Taking financial assistance to overcome material challenge is of great help provided one makes payment on time.