Out of the many concerns a borrower would have, the interest rate will definitely be one. On the interest rate depends on how much you pay towards a loan. Higher interest rate results in higher pay back and longer duration is sure to add to your woes. Brave your heart before calculating the amount you pay as interest. Things may not be as bad for those with an acceptable score.
Why Credit Score Matters
Credit score is a reflection of the financial discipline of the person who applies for a loan. Good credit history makes the lenders believe in your ability and genuineness to honor commitment. If, on the contrary, your score is not impressive, you may not be favorably considered unless the reasons you give for the poor score is convincing. A bad score always minimizes the possibilities of loan sanction and hence it is best to keep your credit track perfect.
Good And Bad Credit Scores
Credit score above 700 is considered good if the range is 300 to 850. Credit score below 600 is considered bad credit and for poor credit, the score is between 600 and 649. However, not all lenders go by the numbers. Some offer loans for persons with low score but the interest rate goes up.
Loan From Bank of America With A Low Credit Score
Definitely, Bank of America is not going to happily extend you loan if your score is not in the expected levels. But, you are not given a flat denial if your score is not pathetically low.
If your reasons for the delay or failure in honoring your payments are acceptable and if you are found to be eligible for a loan, the bank will consider giving you a loan but you will be charged an interest that will definitely be above the normal interest rate.
Interest apart, if it is a home loan you have applied for, you will be asked to make a higher down payment. If it is a personal loan, you will be offered lesser money for lesser term and higher interest rate.
The amount paid as interest by a person with poor score is definitely higher than the interest paid by a person with good rating. Assuming you avail a loan of $3,00,000 for a 30 year term, you will end up paying over $70000 extra as interest when compared to the interest charged for good credit score. If it is a sizeable sum (as it would be for anyone) for you, then the suggestion would be to improve the credit score before applying for a loan.
The options may be limited but you can still make it.
- Look for loans from other financial institutions.
- Consider the possibility of being required to pay higher down payment in case of home loan.
- See if you have the money. If not, consider how you will manage the funds. If you intend to borrow the sum, you owe money to two sources.
- In case of a personal loan, you may be sanctioned lesser money than you had applied for. Under such circumstances, how will you manage for the remaining amount and remember that you may have to pay more as interests.
- If you have successfully crossed the first hurdle, draw a budget and analyze if you can pay more as interest and hence higher emi.
If you consider that it would be a tough call, it is best to apply for a loan at a future date. Look for ways to settle the debts you have at the moment. Once the debts are cleared your score would get better. The prospects of getting loan will also get better.