Bad Credit Doesn’t mean No Credit
Often times clients think that if they have a lousy credit score, they have absolutely no shot at getting a loan for a home, a car, their education, or whatever else they are looking to buy. This, even in todays harsh environment, is not usually the case. There are banks and loan officers out there who willingly lend money to people who have poor credit score, have foreclosed on a home, or even filed for bankruptcy in the past. Something you must realize though is that the worse your credit score is, the higher your interest rate will be. There is not 100% set in stone formula for what rates you will pay compared to the norm, but below is a quick look at the average rates above the prime rate you will likely have to pay in order to qualify for a bad credit loan or mortgage. Note that the ranges overlap, so you could fall in 2 possible scenarios, in which case other credentials such as Employment, salary, and assets will be used to determine your Mortgage rate.

Credit Score
550-650 – A Couple 1-2 Month Late Loan Payments – Prime Rate plus 0% – 1%
500-620 – Several Late Mortgage Payments, 1 may be up to 4 months late – Prime rate plus 1% – 3%
400-560 – Many 4 Month Late Payments, or Foreclosure – Prime Rate plus 3% – 6%

What This Means Money Wise for Mortgage or Loan Payments
You may look at the above chart, and think to yourself, that a few extra percentage points isn’t all that bad. Think again. Although a rate of 1, 2, 3, or 4% may seem like no big deal, let’s assume you are taking a mortgage or a loan out for $300,000, fixed rate over 30 years, and the current prime rate is 5%.

Category                             Interest Rate                       Monthly Payment
Perfect Credit                      5%                                                             $1610
600 Credit Score               6%                                                                    $1798
540 Credit Score               7.5%                                                                   $2097
420 Credit Score               11%                                                                   $2856

Now, look at the difference you would be paying each month if you had a horrible credit rating of 420, compared to someone with perfect or near perfect credit.  $1246 each and every month on your mortgage payment to be exact.  Do you know how much money you would be paying extra over the life of the loan?  The person with the Perfect score would pay back $579,600 over 30 years for that $300,000 borrowed.  The person with the terrible credit would pay back $1,028,160.  That mean that with bad credit, your rate would force you to pay $448,600 more than the person with the Good credit mortgage loan.

Things to Remember when Considering a Bad Credit Loan
- The Rate and amount you are approved for on the mortgage will be dependent on your credit score, your current income, the collateral you have in terms of assets, and the length and stability of your employment.
- Secured loans will usually have a lower interest rate than unsecured loans, especially for those with really bad credit.
- There are several different types of loans for people with poor credit. The lender will usually go over the different types and suggest the one that will be best for you.

Conclusion
If you do have bad credit, now is not the time to run and hide. A bad credit mortgage loan can be the very thing you need to pull your score up, and get your life back on track both emotionally and financially.