- 1 how to get a personal loan with bad credit
- 1.1 How to get a personal loan with bad credit
- 1.2 How to Get a Personal Loan With Bad Credit
- 1.2.1 There Are Personal Loan Companies For People With Bad Credit
- 1.2.2 There Is The Option Of Credit Cards
- 1.2.3 Consider Waiting Six Months To Rebuild Your Credit
- 1.2.4 Can You Secure The Loan With Your Car Or House?
- 1.2.5 What About A Credit Union Or Peer-to-Peer Company?
- 1.2.6 Advantage Of A Loan With Bad Credit
- 1.2.7 Disadvantage Of A Loan With Bad Credit
- 1.2.8 Bad Credit Loan Companies Offer Unsecured Loans
- 1.2.9 Conclusion – Don’t Get A Loan With Bad Credit
- 1.3 Personal Loans For People With Bad Credit Or No Credit
- 1.4 Personal Loans For People With Bad Credit Or No Credit
- 1.5 How to Get a Personal Loan with Bad Credit
- 1.6 How to Get a Personal Loan With Bad Credit
- 1.7 Gather Your Personal Information
- 1.8 Prove You Can Pay the Loan Back
- 1.9 Talk with Your Bank or Credit Union
- 1.10 Consider Which Loans Are Best for You
how to get a personal loan with bad credit
How to get a personal loan with bad credit
How to Get a Loan With Bad Credit
If you need some cash for a personal reason–such as medical bills or debt consolidation–you may be considering a Personal Loan. And they’re a good idea, since there are no restrictions on how you can use the money (unlike a car or mortgage). Although interest rates are higher than that of a Home Equity Loan or Home Equity Line of Credit, Personal Loans are available to anyone–even those who don’t own their home.
Many people will tell you that in these tough times, banks and lending institutions have made it nearly impossible for individuals to get personal loans. That’s not true at all. While it’s true qualifications are stricter now, getting a loan can be tough or easy – depending on how well-prepared you are. But here’s the catch: you will need to prove you’re worth every cent you borrow. Here are some tips to help you out.
Choose Your Options Wisely
You can choose from two options in bad credit personal loans. First, you can opt for unsecured personal loans. Typically, you will have to pay higher interest rates because of the higher risks assumed by the creditor although you need not present any personal and/or real property as collateral.
Remember this is an emergency personal loan to fullfill an immediate and urgent requirement, for the lender it is a high risk unsecured loan so the charges will be in proportion to the level of risk and the amount of cash offered will be limited. If you need a longer term loan or more money you should be looking at alternative ways of borrowing.
Can you afford the interest?
This is a very important question that is often overlooked when people are considering which loan to apply for and how to use it. Spending the bank’s money seems so much easier than spending your own but the truth is you have to pay it back and not just what you have spent but interest on that money as well. Calculate on much money you have been approved for and if you can afford to pay the monthly interest but not only this, can you afford to pay the loan back as well?
Depending on your credit rating, you may be able to get personal loans on an unsecured basis. This means that you don’t have to put up any collateral, like your savings account, car or home in order to get the loan. Keep in mind that unsecured loans will typically carry a higher interest rate. If you cannot qualify for an unsecured loan, you can apply for a secured loan. This means you will have to pledge personal property as collateral. If you cannot qualify for an unsecured loan you may want to see if you can get a co-signor.
It is best if you get personal loans from online lenders for major emergencies only. If you need to get your car repaired so you can get to work, or get a major home repair done quickly, then consider an online personal advances. Remember, the interest rates and loan fees will likely be higher so use them carefully.
How to Get a Personal Loan With Bad Credit
Getting a loan with bad credit is like having seawater delivered to your sinking boat. People with bad credit do not need more debt, and they certainly do not need debt that will charge them almost 100% of what they are borrowing. If you are getting the loan in order to make ends meet, then ask yourself how you are going to make ends meet next month when you have your current bills and your new debt bills.
There Are Personal Loan Companies For People With Bad Credit
If you want a loan and you have bad credit, then there are loan companies that specialize in such things. It is as simple as applying and getting your loan–there is nothing extra to it. So long as you have had a job for the last six months and there is nothing too sketchy on your history recently, such as signs of fraud or identity theft, then you will probably get your loan.
It is really as simple as that. There are companies out there that will give you a loan even if your credit score is terrible, even if you have had collections, have had judgments against you, and even if you have been delinquent in your payments.
There Is The Option Of Credit Cards
Before you consider a consolidation loan, have you considered credit cards. That is, using a credit card instead (or pulling out cash on your credit card). Credit Cards are probably the hardest type of debt to get out of, but they also have better interest rates than the rates that a bad-credit company may offer you.
If possible, try and charge the the amount to your card rather than pulling out cash — taking out cash from an ATM on your credit card starts accruing interest right away. Charging your card gives you 1 month to pay back the ‘loan’ without any interest.
Another option here is to consider a credit card with a low APR balance transfer IF you need to hold the credit card balance for more than a month. You may be able to get a good rate by transferring the balance to a low apr credit card.
Consider Waiting Six Months To Rebuild Your Credit
If you wait six months and keep your credit rating clean, then you stand a better chance of getting a loan from another company besides a bad credit company. Improving your credit score slightly may qualify you for a loan you might have been rejected for before.
Make sure you know what your credit score is first before applying. These days, you can use free credit score websites like Credit Sesame to check your credit without having to pay a single penny or sign up with a credit card.
Can You Secure The Loan With Your Car Or House?
If you have a big asset such as a car or a house, can you get a secured loan? With that in mind, if you have bad credit and you are looking for a loan; do you really want to risk your house or car? If it seems that money matters are not going your way, would you really want to risk your house or car in the hope that your money troubles will get better?
What About A Credit Union Or Peer-to-Peer Company?
There are a few peer-to-peer companies that may offer you loans if they are consolidation loans. If you are on the verge of having an okay credit rating and having a sub-prime credit rating, then you may be able to get a loan with a peer-to-peer company for a reasonable rate rather than a devastatingly high rate. You may try Prosper, Lending Club, Peerform and SoFi.
Instead of using a bad credit company, you could ask one of your family or friends if they may lend you the money. If they will not, then ask if they will be co-signers on your loan or a loan guarantor. If your friend or family member has a good credit rating, then it may increase your chances of getting your loan with a decent APR rate.
Advantage Of A Loan With Bad Credit
They actually give you a loan, which is something that other lenders will not do. If you need money and you have bad credit, then getting a loan may pull you out of the trouble you are in. If you are taking out the loan to pay bills, then you may be digging yourself into a deeper hole.
Another good thing about getting a loan with bad credit is that you may rebuild your credit rating with your loan. If you have no loans at all, then it is a little trickier to rebuild your credit. If you have a bad credit loan, and you make all the payments without missing any, then you may rebuild your credit score.
If you are using the personal loan to consolidate your debts, then it may help you a great deal. It may be able to turn numerous debts into one debt. If this also means that your monthly outgoings are reduced, then it may help you keep to your monthly budget.
Disadvantage Of A Loan With Bad Credit
Loans for people with bad credit will often have terribly high APR rates and often have the ugliest repayment terms. It is almost as if they want the person with poor credit to fail. One wonders why such companies would seemingly help people to fail. The reasons are not as obvious as they first seem.
On the one hand, they are taking a bigger risk when they give money to people with a poor credit score, so it stands to reason that they would want to make more money to compensate for the risk.
On the other hand, the second reason is that they have to put some sort of hurdle in front of their loans. After all, if they are giving money out to people with poor credit, then they are pretty much giving money out to anybody, which is a bad business model for any lending business.
At least if they have a high interest rate, then it scares off a few people and makes them think before taking the loan.
Bad Credit Loan Companies Offer Unsecured Loans
Typically, most bad credit loan companies are offering unsecured loans. They protect themselves with bigger interest rates and by only offer lower amounts of money. They have no claim to your house or your assets, but they will probably send collections agents around to your house if you do not pay your monthly installments and they manage to get a judgment on you.
If your do get a secured loan, then your house is at risk if you are unable to repay the loan on time and as per the loan company’s terms and conditions. Remember that companies that offer high-interest loans to people with bad credit will typically dictate the terms and conditions. One of the most common is how much you may borrow and how quickly you have to pay it back. If you are expecting a long repayment schedule…then think again.
Conclusion – Don’t Get A Loan With Bad Credit
Bad credit loans such. They suck. They suck big style!
Loans for people with bad credit are designed to hurt (not literally of course). People with bad credit do not need that sort of trouble. The only justification for a loan with bad credit is if your current debt payments are too much and your bad credit loan is a consolidation loan that will lower your monthly outgoings.
Even if that is the case, the amount of money the company asks you to pay back is so much that you simply have to find another way.
Bad credit loans are almost always not worth your time or money. They are for the truly desperate, and if you can hold off and build your credit rating for six months, then do that and get a loan with another company instead of getting a loan with bad credit.
Personal Loans For People With Bad Credit Or No Credit
Bad credit or no credit makes it tough – but not impossible – to get a loan. Credit unions, home equity and peer-to-peer loans or even debt consolidation with no loan could improve your credit rating and increase your future options.
Personal Loans For People With Bad Credit Or No Credit
You may have seen it on a sign somewhere or possibly on your TV or computer screen: “No credit, no problem!” Don’t believe it. The truth is, when you need to get a personal loan and you have no credit or bad credit, there definitely is a problem. It’s not an insurmountable one, but it is a problem nonetheless.
Having poor credit makes you a high-risk customer to major banks, credit unions and other major lending institutions. Those lenders have strict standards, and they rely on credit scores when picking their borrowers and calculating loan terms. Unless lenders are assured that their loans will be repaid, they simply won’t make the loan. In addition, heightened regulations and tighter internal controls by lenders in the wake of the Great Recession make today’s lending climate a tough one for borrowers.
So when your credit is bad, you may feel like you’re at the mercy of payday lenders and other sources of financial help, sources that will only loan you money if you agree to repay it at high, or “subprime,” interest rates. These loans are fool’s gold. They often you leave more in debt than you should be. In fact, payday loans are illegal in 13 states because of their predatory terms.
To understand how your credit affects your personal loan options, the best place to start is to understand your credit score. Free credit scores are now available at several online sites.
The National Foundation for Credit Counseling says that 60% of Americans haven’t checked their score in more than a year.
Some common signs of a bad credit score include:
- You are paying higher interest rates than you see advertised
- You have stopped trying to pay down debt and are satisfied making minimum payments on high interest credit cards
- You have a history of late payments for housing, utilities or other monthly bills
- Your checking account is overdrawn on a regular basis
- You have problems getting a lease for housing
- Cell phone companies won’t give you a contract
All of these have a negative effect on your credit score, making it more difficult to get a loan. Don’t get sucked into a situation that sounds too good to be true. If you have bad credit and need a loan there are options available but it will take a little time and research to find the one best suited to you.
Credit unions are similar to commercial banks in terms of their services, but they are owned by their members rather than by profit-seeking shareholders. Credit unions are nonprofit institutions, meaning they pass their earnings along to their members in the form of lower fees and borrowing costs and better customer service.
A credit union – especially one affiliated with your employer or one that is community-based – may be willing to look beyond a poor credit history and make a judgment about whether it will loan you money based on your character and your promise to repay, regardless of if you have bad credit or not. Think of them in the way you would a small community bank from years ago.
Although the recent recession forced a number of smaller credit unions around the country to merge with larger ones, almost all credit unions are actively looking for borrowers. If you can afford terms that match your credit history, you are likely to find a credit union somewhere willing to work with you.
If you are thinking of asking a credit union for a personal loan, look for one with which you have something in common. For example, if you are a veteran of the armed forces, you might want to approach the Navy Federal Credit Union. If you are a teacher, there are credit unions created by and for members of that profession.
By joining a credit union, you could position yourself for much more favorable loan terms, regardless of your credit score.
The Navy Federal Credit Union caps its personal-loan annual percentage rate (APR) for members at 18% — and that holds true even if your credit score is 600 or less.
In the same credit situation, a bad-credit borrower might receive a 36% APR from another lender.
Let’s say you have a three-year, $10,000 loan. Here is the total repayment:
The chance to save more than $3,000 makes it worth looking into enrolling in a credit union.
In Shakespeare’s “Hamlet,” the character Polonius admonishes his son Laertes to be “neither a borrower, nor a lender.” While this advice is prudent when dealing with strangers, it might be even more judicious if you’re thinking about borrowing from family members or friends. Not repaying a loan to a relative or close associate can poison relationships in ways that go far beyond a bad credit report.
Nevertheless, sometimes those closest to you are your best sources of funds and a family loan can benefit everyone involved. You should always treat any loan from someone you know just as if it were an important business transaction between you and a stranger. That means it should be formalized with clear documentation and legally recorded. To avoid future problems, create a written contract that includes the loan terms and interest rate, and what will happen if you cannot repay the debt.
If borrowing from a friend or relative is not possible, you can still approach someone with good credit who trusts your capacity to repay the loan and you can ask him or her to be a co-signer on a personal loan from a traditional lender. With a qualified co-signer, the lender will set the loan terms based on the credit score of the person with good credit, who will then be equally responsible for repayment. All payment information will be recorded on both yours and your co-signer’s credit reports, so if you default on the loan, or you’re late with payments, you will severely damage your co-signer’s credit score. However, if you make timely payments, your own score will improve, making it easier to obtain future loans without a co-signer.
If you have equity in your home, you can apply for a home equity loan or home equity line of credit (HELOC). Home equity is the difference between the amount your home can be sold for and your mortgage. Your home is used as collateral, and home equity loans can be obtained regardless of your credit score. The interest rate is usually low, because the loan is secured by the home. Also, the interest you pay on a home equity loan is usually tax-deductible.
Unlike a home equity loan, which is a lump sum of cash, a HELOC acts like any other credit account. You can access money when you need to, up to the loan’s credit limit, and you must pay it back according to a predetermined schedule. In both cases, it is important to remember that tapping your home equity puts your property in jeopardy if you don’t repay the debt. But if you are disciplined and have a reliable source of income, it is an inexpensive way to borrow from a reputable lender if you have bad credit.
One of the benefits of a home equity loan or HELOC is the extended loan term (15 or 30 years). The long term will substantially lower your payment, though you will pay more in interest over that time period.
Peer-to-peer lending, also known as person-to-person lending, is a relatively new loan form, having only been around since 2005. It’s an online platform that allows you to borrow directly from another individual rather than from an institution. Potential borrowers can post a loan listing on various peer-to-peer websites, indicating the amount wanted and what it’s for. Investors review the loan listings and choose the ones they wish to fund.
Your credit score is still a factor, but since an individual investor has much greater leeway in how it is to be weighed these loans are often more readily available for people with bad credit. Lending standards are significantly more lenient and interest rates are usually lower than those offered by traditional lenders. In addition, peer-to-peer websites help evaluate risk for the lender, while verifying the lender’s credentials for the borrower.
How to Get a Personal Loan with Bad Credit
Historic. That’s the word a recent Forbes article used to describe the rise of online lending. What’s the reason for this exponential growth? We offer five suggestions as to why borrowers have begun to embrace the online loan.When you have bad credit and no money, everything is an emergency. From a flat tire to a surprise medical procedure, even small struggles can turn into major crises when you can’t afford them.
Don’t panic. There’s an easy solution for your short-term debt problems – a personal loan. You just need to know how to get one.
We’ll show you how to boost your chances to qualify for an unsecured personal loan when you have bad credit. The process is relatively simple, albeit with caveats. When you’re ready to start the process for obtaining a loan, head over to our loan request form.
Bad Credit Means Fewer Options
Before we show you how to get a loan, you should know what types of loans are out there. We help people try to find lenders that offer three different types of loans: Bank Personal, Peer to Peer, and Personal Installment. (We recommend that you try to get the best loan possible, but don’t apply for too many loans. You'll get a credit check every time you apply. Too many credit checks will lower your overall credit score.)
- Bank Personal – These are loans you get from your local bank. They often have lower interest rates than other types of loans, but they can be a little harder to get if you don’t have a great credit history. When banks look at your credit history, they also look at your debt history, or how long you’ve been paying off debts. That means it’s inherently harder for young people to get approved for these types of loans because they typically don’t have a lot of experience with debt (e.g. mortgage, car payment, credit card bills).
- Peer to Peer (P2P) – This is a newer type of loan. With a P2P loan the money comes directly from a company or a business, but never from a bank. It’s usually done online. They can have even lower interest than bank loans, but they require you to have a good credit history. It’s possible to qualify for a P2P loan with bad credit, but it’s unlikely.
- Personal Installment – This is the loan for people with bad credit or a limited credit history. You’ll likely pay higher interest and fees compared to what you would pay with a traditional bank loan. But, if you pay the loan off on time, you’ll improve your credit history and be more likely to get a less expensive loan next time.
There are other types of personal loans, but we don’t recommend all of them. If you need more than $1,000, then don’t sign up for a cash advance. Most states limit the amount you can apply for with a cash advance anyway. Technically, you could combine several cash advances to reach your loan target amount, but the interest would be overwhelming. We recommend that you stick to the three types of loans listed above.
Note: You also should stay away from secured loans. These are loans that require you to offer collateral, such as your house (home equity loan) or car (auto title loan). If you can’t pay off the loan, you lose whatever you offered against it. It’s better to avoid that risk and instead apply for an unsecured loan.
If you have bad credit, a lender might be more willing to offer you a loan if you have a co-signer. What's a co-signer? It's someone who agrees to pay off your loan for you if you are unable to pay the loan off yourself. This person will need to have excellent credit to make up for your bad credit.
When I purchased my first car, the dealership had a great deal going on: a 1.9-percent interest rate if I financed the car through the company's loan department.
I'd saved up enough to pay in cash, but I wanted to have it financed to boost my credit history.
(Remember, your credit history gets better the more times you prove you can pay off a significant amount of debt, but that's only true if you take the time to pay off the debt. So, if you buy a new car, you should get a loan and make regular payments for at least two-and-a-half years, so it counts as a good credit experience. If you do this, your credit history will get you a lower interest rate when you apply for a mortgage.)
I didn't have any negative marks in my credit history, and my score was pretty high. But I still wasn't qualified for the loan.
They told me that I didn't have enough experience.
The only way I could get the 1.9-percent interest rate was if I had a co-signer. Well, my wife's parents happened to be visiting that weekend, and they had come to the car dealership with me. I didn't want to ask my father-in-law to co-sign, though. I wanted to buy the vehicle on my own.
Still, it made sense to have the car financed. He was willing to co-sign, even though he'd had a bad experience co-signing in the past when he had to pay for the item he'd co-signed, and so we pulled the trigger and got the car financed at the 1.9-percent interest rate.
Chances are if you try hard enough you'll be able to find a co-signer, too.
Lenders are a stubborn bunch. You can trust them to try everything in their power to get you qualified for a loan. You just have to be willing to work with them. Here are some tips for when you're dealing with a lender:
- Give them the information they need. We only work with reputable lenders, so you can feel safe giving them your information. We understand that it can be difficult to hand out sensitive information, like your Social Security number.
- Be honest with them. Don't try to hide any big financial mistakes. Remember, they want to sign you up for a loan. They will help you through the process, but they need to have accurate information to do so.
- Go ahead and offer suggestions. If you want to negotiate your rates or suggest adding a co-signer to the loan, then go ahead and do it. They'll let you know what's possible and not possible.
In the case that you find a loan, your lender will offer you a loan agreement. Read over the contract and make sure it includes the price points you expected. Don’t sign it until you have read it thoroughly and agreed with everything in the agreement. You can always call your lender if you have any questions.
How to Save on a Personal Loan
The best way to save on your loan is to pay it off as quickly as you can. The sooner you pay off your loan, the less interest you will pay. First, though, make sure there's no penalty for paying back your loan before the due date. If there’s not, you should pay back your loan as fast as you can.
Your lender will set the fees and interest for your loan. These charges can be affected by state regulations and your credit history. There’s not much you can do about your state laws, but you can bump up your credit score. Improving your credit score will also improve the chances that you’ll get the loan in the first place. A recent Forbes article listed several great tips for improving your credit score.
- Contact the people in charge of your credit score and dispute any errors. The three major credit bureaus are Equifax, TransUnion, and Experian.
- Apply for another credit card. As long as you pay your bills on time, having a couple of credit cards can bump up your credit score.
- If you have more than one credit card, it's smart to spread your debt between the cards. If you max out a credit card, that'll be bad for your credit score. But if you use less than 30-percent of your limit spread across a few credit cards, then you'll likely have a better overall credit score.
- You should also increase your credit limit on all of your credit cards. (Just don't also increase your spending.) This tip helps you in a couple of different ways. When you have a higher limit, it’s easier to stay below the suggested 30-percent usage level. Also, just having a higher credit limit will improve your credit score.
- Grab your phone, call your creditors, and negotiate. Remember, they want money and you want a better credit score. Sometimes they'll offer a compromise, like erasing the accounts that went to collection on the condition that you pay the debt off. If you can't get them on the horn, then we suggest writing them a letter. Forbes says that you should request a "good-will adjustment,” which is pretty much a mulligan for credit mistakes.
Beware of credit repair companies that promise to improve your credit rating by getting negative information taken from your credit report. Most of the time the bad stuff can’t be removed unless it’s old. According to the Credit Repair Organizations Act, it is illegal for these companies to make false promises or bill you before completing their services.
It's sad, but not all sites that offer “bad credit personal loans” actually follow through. Here are a few products that won't help you get a personal loan.
- Avoid refillable debit cards. When you search online for credit solutions for people with bad credit, you're bound to find sites offering refillable debit cards (often branded as credit cards). These will be useless to you. These cards require you to use your money to fill them up. Sometimes they have a monthly fee, upwards of $15. That means you are paying to have a place to keep the money you already have. They might be useful if you need to buy something online and you don't have a credit card. But they won't help you if you require a personal loan.
- Don't bother with low-limit loans. If you need less than $1,000, then you probably shouldn't be applying for a personal loan. In fact, you should be a little wary if a lender offers you a personal loan for less than $1,000. Also, stretching your debt across several low-limit credit cards can be dangerous. If you forget to pay just one payment, your credit score will sink even lower.
- Stay away from scam sites. When you fill out our secure form, we will try to help you find a reputable lender. This free service helps you avoid the Internet's many scam sites. All of our lenders are licensed and allowed to lend money to borrowers. You should never enter your information into a site that doesn't guarantee that their lenders are licensed.
Don’t believe the adage, “Beggars can’t be choosers.” You are allowed to search for the best loan for your circumstances. Try to avoid the unsavory ones. The Federal Trade Commission offers tips on how to recognize an advance-fee loan scam.
There are a few basic requirements that you have to meet to be approved for a personal loan with bad credit. They are less strict than you might think. As long as you are at least 18 years old, a U.S. resident with a valid ID and Social Security number can show proof of income and have a bank account; there’s a good chance that you’ll qualify for a personal loan. Of course, we can't guarantee that you will be eligible. We are not a lender, and it's up to the lender to decide how much you'll get or if you'll get anything at all.
You can get a loan with bad credit. But wouldn’t it be nice to have enough credit? You will need to change your spending habits before that happens. Use this loan as an opportunity to improve your credit. You’ll do that if you pay off the loan without missing a payment.
If you are using this loan to treat long-term debt problems, you will need to figure out a different way to address that problem. Taking out more debt is not a good way to get out of debt. We suggest meeting with a debt counselor. They will teach you how to change your spending habits, consolidate your debt, optimize your income, and finally reach financial independence.
You can go from having bad credit to having enough credit.
We hope this article helps you reach your goal of getting a personal loan. We know that having bad credit can be difficult, but hopefully, these tips will help you get the money you need.
How to Get a Personal Loan With Bad Credit
If you are in need of some extra funds, but your credit scores don’t appear to be in tip-top shape, then you may be wondering how to get a personal loan or if it’s even possible. An ideal lender would be willing to look past your credit scores and be transparent when it comes to lending you money.
The good news is you can get bad credit loans that provide you with the cash you need even if your credit scores are less than perfect. Using a personal loan responsibly can help you get on top of your finances and focus on building or repairing your credit and paying off any debts you might have.
To find a personal loan with bad credit, you will need to do some research and choose where you apply wisely — we are here to help you understand how to do that.
While a personal loan can help you get your finances under control, it’s important to note that a loan may not be the answer to all your financial problems.
There is a lot of information to consider before you attempt getting a personal loan with bad credit including the information you will need, the types of personal loans available, and what scams and other fraudulent activity you need to be aware of during the process.
Here are some tips to help you learn how to get a loan with bad credit.
Gather Your Personal Information
As you think about how to get a personal loan, start collecting some information a lender may ask about. Here are some important things to know that will help you get prepared to apply for a personal loan.
The first thing you want to do before you apply for a loan is understand your credit and your credit scores because this will give you insight into the details a lender reviews when they pull your credit.
To see where your credit currently stands, you should check your credit scores for free on Credit.com. Checking your credit scores will not affect your credit in any way because checking your own credit scores is considered a soft inquiry or a soft pull.
You don’t need perfect credit, but your credit score impacts the terms and conditions you will qualify for, such as how much they are willing to loan you and what your interest rate will be for repayment. For example, bad credit loans will likely come with higher interest rates and may be issued for lower amounts.
If you see that your score is looking pretty lackluster, you may decide to improve it before applying for a loan. Some credit score improvement options you may consider include paying down debts, reviewing your credit reports for errors (and disputing any errors you find) and limiting the number of hard credit inquiries that are placed on your credit until your score rebounds. Improving your credit score before seeking a loan can help you receive much better rates.
You will also want to take a good look at your credit report from all three credit bureaus to make sure there are no mistakes and all the information is correct. If you see something wrong, you should report it and dispute it.
Each of the three credit bureaus- Equifax, Experian, and Transunion- have their own credit report for you to look at and sometimes the information between the three may slightly vary which means it is important that you check and monitor each one of them on a regular basis to track any changes or catch any instances of suspicious activity.
Checking your credit reports will also give you a good indication of where you would stand with a creditor and may offer you insight on what you need to do to begin repairing and rebuilding your credit before you begin to apply for any type of personal loan.
If you have decided to go ahead and proceed with applying for a personal loan, take the following into consideration regarding the next steps and what you will have to do to try and qualify for the personal loan:
Prove You Can Pay the Loan Back
It’s important to note that lenders will want to know you can repay the personal loan before they issue it, and the amount they are willing to lend often depends on your ability to repay them. It’s a good idea to show how you will be repaying them by offering proof of income or having a cosigner.
A cosigner is a person that is being asked to guarantee that the debt will be paid back. If the borrower fails to make the payments, then the creditor will turn to the cosigner to collect the money that is owed on the account.
The cosigner will need to have a good credit score and credit history and having a healthy length of time reported on their credit history may also help the chances of the creditor agreeing to make the loan.
If you find that you need to have a cosigner in order to get approved for the personal loan, then they will have to be able to provide the creditor with proof of income to prove that if you fail to make the payments, the cosigner will be able to.
Talk with Your Bank or Credit Union
Next, research minimum credit score requirements for personal loans from lenders in your area. A good place to start is with the bank or credit union you currently use, as they already have an understanding of your financial profile.
Something worth noting is that credit unions may have more flexible lending standards and may be more willing to offer you a small personal loan. If you have been at the same bank for years, consider asking the bank’s loan department how to get a loan. You may also want to inquire if your credit score would qualify you for a personal loan.
Consider Which Loans Are Best for You
Remember when we mentioned limiting the number of inquiries on your credit while you work to improve it? Here’s why:
Each loan application you submit triggers an inquiry into your credit, and hard inquiries can lower your credit score roughly five to ten points. So, when you decide to start applying for a personal loan, you will want to do your research and not apply for every loan you come across.
It’s a good idea to only apply for loans from a lender you trust and has lending standards you feel confident you can meet. You may be able to find the minimum credit score a lender requires for a personal loan on the lender’s website, or you can call the lender and speak with a representative.
Loans for bad credit might have higher interest rates or be capped at a lower amount because lenders are much more cautious when doing business with people with lower credit.
Secured personal loans are some of the most common types of loans and are generally used for a car or mortgage. When you borrow money from a secured personal loan, you are securing the amount that you are borrowing with one of your assets. Your asset then becomes collateral for the loan if you are unable to pay as agreed.
A secured personal loan is risky because they can take whatever you used as collateral if you do not maintain all of the payments on the account and pay on time as agreed upon.
Unsecured personal loans occur when you borrow money from the bank or financial institution, and you agree to make all the payments as discussed until the account is paid back in full.
This type of unsecured loan, when not paid as agreed upon, may incur additional fees on top of the amount owed, but they are not secured with an asset or any other type of collateral like in a secured personal loan agreement.
There are plenty of online lenders promising loans with no credit check to people who have damaged or bad credit. While this option might sound ideal, be cautious. These websites may be nothing more than advance fee loan scams. According to the Federal Trade Commission, a lender not seeming interested in your credit history is a big red flag and could indicate a fraudulent website.
If you are someone hoping to get a personal loan with bad credit, you may be the ideal target for scammers or fraudulent lenders. Consider contacting your state’s Department of Banking or Department of Financial Regulation to see if a lender is registered to do business within the state.
The Better Business Bureau can also tell you if any customers with bad credit have filed complaints against specific lenders.
One of the biggest consequences of having bad credit is being more susceptible to scams and other fraudulent behavior. Just remember, every legitimate lender will want some proof telling them that you will be able to pay back the loan.
Also, a red flag of a scam would be when the lender says you have first send them some kind of upfront payment before they can give you the personal loan. You will also want to be careful not to provide any sensitive information such as your social security number or bank account information without first obtaining the legal written documentation concerning the loan.
Let’s take a closer look at what it means to want a personal loan. Personal loans are typically loans given by a bank or other financial institution and are usually unsecured and are installment loans that can help the borrower do a number of things such as consolidating their debt or making a payment on something they weren’t expecting.
A payday loan offers a lower amount of money at an even higher interest rate than other personal loans. Payday loans are also to be paid back when the borrower receives their next paycheck which makes it a very short-term personal loan to help cover any unexpected expenses.
Payday loans also have an additional cost of anywhere between ten and thirty dollars for every one hundred you borrow, and these types of loans generally have a cap of about $500.
Payday loans do not require any kind of credit check from any of the three major credit bureaus which means obtaining one will have no initial effect on your credit score. However, if it is not paid back within the two to four-week timeframe, it is then sold to a debt collector and placed in collections which will show up on your credit report with adverse effects. Payday loans also usually come with extremely high-interest rates, so you will be paying much more back than the amount you initially borrowed. All considerations to make prior to obtaining a payday loan of any kind.
Next, we will determine what exactly qualifies as bad credit.
Credit scores can range depending on the model you are looking at. FICO scores, for example, fall within the range of 300 and 850. 300 would be the lowest spectrum of credit in this model and 850 would be the highest possible score you could have.
On average, creditors will say that a good credit score would be somewhere between the 700 and 850 mark. An okay or fair score would fall between 620 and 679, and a low to poor credit score will be anything falling under 580.
If you are in the lower spectrum, you may want to reconsider trying to get a personal loan because you will be faced with much higher interest rates, if you are approved for the loan at all.
If you find that you will not qualify for the traditional personal loan, peer-to-peer lending is another method of debt financing that can help enable individuals to borrow and lend money to other individuals without a financial institution as the middleman.
With peer-to-peer lending, the lender will take funds from their own money to lend to an individual after determining the amount and an agreed upon interest rate for repayment of the loan.
Peer-to-peer lending is often referred to as a type of crowdfunding because it is offering unsecured personal loans to people who may not otherwise be able to get a personal loan the traditional way.
The bottom line is to do your research before applying for any kind of personal loan when you are faced with bad credit. It is also recommended that you look at other alternatives such as attempting to rebuild your credit and build up your credit scores first, so you have a better experience and receive a better APR. Sometimes a personal loan and bad credit are best left separated, and a better look at your credit history with a credit check will yield more positive results.
Remember, a personal loan is not always the answer when it comes to your financial woes. Sometimes thinking more long-term may get you to arrive more successfully at your goals for your future financial health and freedom.
This article has been updated. It was originally published November 1, 2016.
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Silvia – I am not sure I understand your question. However, I would suggest you contact a reputable credit counseling agency for advice on how to resolve your debts. You can find one via the website of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
i have a 615 score but a want to get a better score but just dont know how, i leave in nogales arizona , i need help..