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How To Get A Personal Loan With Bad Credit

Getting a personal loan is one of the mains ways to get the money you need. Even though it’s difficult, it’s possible for you to get a loan with bad credit, while certain situations are more difficult than others. There are a couple of things you can do in order to increase your chances to getting approved:

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.

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.

Personal loans are one of the most flexible finance products on the market. You can use a personal loan for practically any purpose from making a purchase to refinancing your debt. In this chart using TransUnion data, we can see that the number of individual personal loan borrowers has steadily increased since quarter one of 2017, increasing from 15.7 million to 20.2 million in quarter three of 2019.

Number of Individual Personal Loan Borrowers (Millions)

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.

Can I Get a Personal Loan with No credit?

Creditworthiness may be used to approve personal loans. It may be more difficult to obtain approval if you do not have credit. Furthermore, accessible loans may have higher interest rates, thereby raising borrowing expenses.

If you can't secure a personal loan on your own or the rates are too high, you might consider a cosigner. According to the CFPB, lenders have extra guarantees if there is a cosigner. If you are unable to repay the debt, a co-signer will agree to do so. It's critical to have faith in your cosigner. Negative actions can have a negative impact on your cosigner credit report.

Another strategy to make yourself more appealing for a personal loan is to establish your credit before applying. This takes time and prudent behavior.

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 pay 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.

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.

There are a number of factors that influence personal loan APRs. One of the factors with the most weight is credit score. If you have a lower credit score, you represent a greater risk to the lender and this is reflected in the rate. In this chart compiled with LendingTree customer data, you can see that those with a 720+ credit score pay an average of 7.63%. At the other end of the scale, those with a poor credit rating of less than 560, the rate shoots up to an eye watering 113%.

Personal Loan Average APR by Credit Score

Credit Union

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.

How Can I Get a Small Loan?

Sometimes you might need to borrow a little extra cash, whether your month is longer than your paycheck or an unexpected expense arises.

Personal loans offer a flexible form of finance, as they can be used for practically any purpose. In this chart compiled from LendingTree consumer data, you can see that debt consolidation is the most common reason for taking out a personal loan. The least common reason is for home improvement. This is likely due to more advantageous products that can be used for home improvements such as home equity lines of credit.

percent of Personal Loans by reason

There are many options available for small loans with poor credit. Unfortunately, many of these loans can be financially risky and could put you in a worse financial position than you were before.

If you have poor credit, you should be careful about applying for a loan. What exactly is bad credit? Each lender will define what bad credit is. People with credit scores below 580 are considered more risky borrowers.

What is a Small Loan?

Although the exact amount of a small loan is not defined, it is generally $5,000 and less. Personal loans of this size are used to pay for emergencies such as medical bills, vehicle repairs, or household expenses. People may seek larger loans for a different purpose or purchase, such as debt consolidation.

A personal loan may be able to help bridge income gaps or pay for a minor emergency like car repairs. You may be able to find a lower rate if you don't have the funds you need immediately.

It may be easier for a smaller loan to be approved and repaid because there is less money at stake. However, you may have fewer options and find it more difficult to get a small loan at favorable terms. Some financial institutions don't offer small loans because they require the same amount of work as larger loans, but have a lower return.

Where I Can Get Small Personal Loan?

Sometimes you might need to borrow a little extra cash, whether your month is longer than your paycheck or an unexpected expense arises.

Although some lenders limit their lending to larger amounts, there are still many places you can go for a personal loan. However, make sure you can afford the loan. and carefully review the interest rates  – many lenders may charge very high rates.

    • Peer-to–peer (P2P) – Online lending platforms connect borrowers and investors who are willing to lend money. These platforms often have low interest rates and offer a fast application process. Some P2P platforms do not offer small loans. LendingClub and Upstart are two examples.
    • Online lenders – Many Online-only lenders specialize in unsecured personal loans that you can use for anything. It's often easy to determine if you are eligible for a loan. It may take only a few days to submit the application and have the funds transferred to your bank.
    • Credit unions and banks – Personal loans are offered by some traditional banks and credit unions. While you can apply online, some institutions require that you visit a branch in person before the funds are released. Some institutions allow you to apply online but require that you visit a physical branch before releasing the funds.
  • Title and pawn loans: This may also be a familiar topic: pawnshop loans. These loans allow you to bring in an item that is valuable in return for a small loan, up to the item's value. You must repay the loan prior to the end of the term. The term varies from one state to the next. You may be required to pay high fees and interest even if you do not repay the loan. The pawn shop will keep the item if you fail to repay the loan. Usually, none of the proceeds go to you.
  • Family and friends: Borrowing money to friends or family can cause problems in relationships. However, it can be a great option if you have the funds and someone who is willing to lend you the cash. You should make sure that you have a written agreement outlining how and when you will repay the loan.
  • Payday loans – This might be a good option for those with poor credit ratings or no credit history. These lenders don't usually conduct credit checks and you can generally get your money right away. Payday loans, which are short-term loans of $500 or less, are due by your next payday. They are often used to help bridge financial gaps until you get paid again.
  • Lines of credit or high-rate installment loans – Online and branch-based lenders may offer installment loans.  Credit lines with high interest rates (from 60% to 199%) and high fees These are usually cheaper than payday loans but they should be used only as a last resort because the high interest rates can make it difficult to repay.

When comparing these fast cash personal loans from online lenders, consider rates and terms as well as the time it takes for a lender to fund a loan. Consider whether you are able to delay borrowing, especially if your rate is high.

You can compare rates, terms, and loan features when you pre-qualify for multiple lenders. Your credit score won't be affected by pre-qualifying with The Smart Investor and lenders who partner with us.

How to Apply For a Small Loan

Although the application process may vary depending on which lender you choose, it is usually the same regardless of whether you are trying to borrow $1,000 or $10,000.

You will be asked to provide basic information such as your name, address and date of birth. You might also need to share copies of your government-issued ID, pay stubs, or tax returns in order to verify your income and information.

Personal loan lenders will need to verify your credit score and credit history. They'll also use these information to decide if you are eligible for a loan.

After you have been approved for a loan you can still choose to accept or reject the offer. Accepting the loan offer may result in cash, a check or a transfer to your account within a few days.