Bankruptcy Loans Advice - interest rates after bankruptcy

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What are bankruptcy loans?

"Bad credit? No credit? We can help!" Sound familiar? They're everywhere, from television to billboards, the Yellow Pages to your computer's inbox, even tacked onto your car's windshield. 'They' are the money lenders who claim to provide those seemingly elusive post bankruptcy loans to people whose credit is kaput.

The good news is that plenty of reputable lenders offer loans to those with damaged credit, but with so much advertising, it's hard to distinguish who is viable and who offers a scam. And yes, loans are available to those with a history of bankruptcy; they are often called damaged credit loans or bankruptcy loans. The secret is to know what your options are before you start searching.

Advice about loans for people who filed bankruptcy

First, know that qualifying for a loan within the first two years after your bankruptcy clears is nearly impossible. Lenders like to see that you spent the two years after your bankruptcy working to improve your credit score, not borrowing more money. This is not to say that you won't be able to find a lender, but they will probably be off the flier under your windshield wiper, and come with astronomical costs and fees, taking advantage of the mantra that beggars can't be choosers.

How does bankruptcy affect the interest rate on a loan?

Second, even if you do go with an established lender, you run the risk of incurring high interest rates. The lender will base its interest rates on your credit history, your income, your credit score and the amount of the loan you are interested in. Those looking into bankruptcy loans will usually be offered a sub prime loan, also known as B, C, D loans, which refers to how lenders grade loan applicants. Using an A through D scale, with A ratings providing the best interest rate, the measures break down as follows:

A- rating - these borrowers have a credit record just short of an A score, and their rates are usually 0.5 to 1 percent over the A rate.

B rating - usually credible, these loan applicants sometimes miss a payment or two, thus incurring interest rates 1 to 2 percent over the A rate.

C rating - these borrowers have a history of collections on their credit report, and have an interest rate 2 to 3 percent over the A rate.

D rating - reserved for those with a bankruptcy or foreclosure on their credit report. These loans are usually small, taken out primarily to reinstate credit, and have a high interest rate, usually 3 to 6 percent, over the A rate.