You have the opportunity to get a loan with bad credit. Keep in mind that you will have to do more research to find a lender to grant you one. Moreover, you need a lender that doesn’t focus on your credit history but is transparent about rates and fees. Even though having flexible terms isn’t a bad thing, it’s wise to stress diligence.
For instance, having bad credit doesn’t give you the excuse to settle for payday and title loans. It’s best to avoid those measures whether you have bad credit or not. Lenders in that arena have the ability to keep you in a cycle of debt. Moreover, if you want to know the different scams out there, check out our list and comparison tool!
About Bad Credit Loans
Even though bad credit loans are identical to secure loans, lenders won’t require your assets. In addition, these loans are for those with bad credit. There are financial institutions out there that give individuals repayment plans to help them rebuild their credit over time.
Furthermore, before you decide to apply for a loan, make sure you understand the costs, terms, and fine print before applying. In order to prevent heartache, only borrow what you know you can pay back, and make paying back the loan your main priority.
Can I Get a Personal Loan With Bad Credit?
Even though it’s difficult, it’s possible for you to get a loan with bad credit. Certain situations are more difficult than others. For instance, the reason why most people have bad credit is that they are in debt. Consolidating and/or refinancing that debt is a smart move, but their bad credit score makes them disqualified.
The good thing about is that there are lenders out there who are considerate of those who don’t have the best credit.
Even though you may get a high-interest rate, lenders won’t disqualify you for your credit score being low. They consider other things such as your income level and the credit level of a potential co-signer, and you can always check it out under loan prequalification calculator.
Getting a personal loan is one of the mains ways to get the money you need. They are unsecured, installment loans that grant you a large sum upfront that you have to pay back over a set period of time. Since the loan is unsecured, there’s no need for collateral.
How Does a Bad Credit Score Affect My Loan?
Having a bad credit score tells lenders that you are not trustworthy with borrowing. For whatever the reason, it was difficult for you to make payments on-time, or you have too much debt for your income to handle.
Since you appear to be risky, lenders find it difficult to loan you money. If a lender does grant you a loan, more than likely it will be of a small amount with a high-interest rate.
Ways to Get a Loan with Bad Credit
Having little to no or bad credit altogether is a roadblock when you are trying to get a loan. It’s because lenders view you as being risky and they’re afraid you won’t pay it back. The reality of it is that you need to raise your credit score in order for major banks to lend you money.
If you can’t afford to be turned down or paying high-interest rates, here are some alternatives you can consider:
Get a Co-Signer
If you want to get a loan approval while having bad credit, you more than likely need a co-signer. The person that co-signs with you is making the promise of paying the loan for you if you fail to do so. Also, keep in mind that your co-signer has to have good credit and adequate income to [ay off the loan.
Even though having a co-signer is a good move, the co-signer is taking a huge risk.
They don’t have the privilege of borrowing for themselves much once the co-sign because they are fully responsible for paying back the loan even if you fail to do so.
For instance, if your co-signer decides to buy a house, they may have to wait until the loan is paid off. He or she is responsible if you don’t have the ability to repay your loan. If you come across a bad financial situation such as becoming unemployed, the lender will go after the co-signer to obtain repayment. If the co-signer can’t pay back the loan either, his or her credit score will suffer.
Get a Peer to Peer Loan
This type of lender has been around since 2005. P2P is an online platform that allows you to borrow from other people instead of from banks. P2P lending is very popular because borrowers pay low-interest rates and investors earn high-interest rates. This is a win-win for both parties. As of right now, you have the ability to borrow for as little as 6% to receive a return in the double digits.
To get a P2P loan, people post a listing online with the amount they want to borrow and why they need it. On the other hand, an investor reviews the listings to choose which one to invest in.
P2P lenders evaluate the applicant and check their credit score, which then merges into the loan listing. Even though investors look at your credit score, they have the potential to show more empathy than the banks.
Find out more about peer-to-peer lending for borrowing and investing below:
- Lending Club
Get a Secured Loan
You have the ability to apply for a home loan or HELOC (home equity line of credit) if you have equity in your home. What your home can be sold for and your overall mortgage makes up the equity. Moreover, lenders don’t require your credit information because your house as collateral to receive an equity loan. Since your home is the collateral, you will receive a low-interest rate. In addition, the interest you have to pay is tax-deductible.
A HELOC acts as a line of credit rather than an equity loan which gives you cash up front. Even though you have access to a line of credit by having a HELOC, you have to pay it back in accordance with your pre-determined schedule. Whether you have a HELOC or an equity loan, you are at risk of losing your home if you don’t pay it back. On the other hand, if you have good, financial health, it’s a cheaper route if you have bad credit.
The main benefit of having a HELOC or home equity loan is the extended term of the loan (15 or 30 years). Even though having a loan term lowers your payment, you pay more in interest over time.
Improve Your Credit Score
Your credit score never stays the same. It’s best to improve your score, if need be, before applying for a loan. This is especially important for those who are very close to the next credit bracket.
- Excellent Credit: 760+
- Good Credit: 700+
- Fair Credit: 640+
A major way to improve your credit score is to make sure that you pay your bills on time and reducing your credit card utilization. Moreover, if you have negative things on your credit report such as a late payment, it’s best to wait for six months and make sure that you’re not late for payments again. If you know that you have a good relationship with your lender, feel free to write them a letter to remove negative remarks.
The difference between credit unions and commercial banks is that they are owned by their members rather than profit-seeking shareholders. Since credit unions are non-profit, they give their earnings back to their members in the form of lower fees & borrowing costs, as well as better customer service.
A credit union that associates itself with your employer or one that is community-based has the potential to be merciful and look past your bad credit. Moreover, they may even consider giving you a loan based on your merit and ability to repay whether or not you have bad credit. Credit unions are like small community banks you would have found many years ago.
If you are considering getting a loan with a credit union, find one that you share common interests with. For instance, if you are a veteran of the army, it’s good to apply for one at the Navy Federal Credit Union. If you are a teacher, there are credit unions catered to people like you as well.
Regardless of your credit score, if you join a credit union, you have the ability to get better terms than you would at a bank.