Having bad credit can be frustrating, especially when getting a personal loan. Your credit score may be lower than you would like it to be if you have been late paying your bills or have more debt than you can handle in the past. When you need money and have bad credit, it can feel like you are stuck between a rock and a hard place.
A personal loan can be a good option for emergency expenses or consolidating debt. If you have bad credit, it can be tough to get a personal loan. But don’t worry – there are still options available to you.
We’ll show you how to get a personal loan with bad credit in this post. We’ll also discuss some things you can do to improve your credit score.
What Does It Mean to Have Bad Credit?
If you have bad credit, you have a history of not paying bills on time, or you’re likely to miss future payments. Your credit score is a number that lenders use to determine whether or not to give you a loan. With a FICO score of 579 and lower, you may find yourself in the “bad credit” range.
How credit score is determined
Several different factors make up your credit score. If you would like to improve your credit score, a few areas to focus on are:
- Payment history (35 percent of your FICO score).
- Credit utilization (30 percent of your FICO score).
- Length of credit history (15 percent of your FICO score).
- Types of credit (10 percent of your FICO score).
- New credit (10 percent of your FICO score).
What Are Bad Credit Loans?
If you have a poor credit score, you may find it challenging to get approved for a loan. Loans for people with bad credit typically have higher interest rates than those offered to people with good credit. If you’re considering a loan, it’s important to compare offers from multiple lenders to ensure you’re getting the best deal possible.
Read more: 5 Things You Need to Know Before Taking Out a Personal Loan
How to Get a Personal Loan with Bad Credit
When you have bad credit, it can feel like getting a personal loan is impossible. But there are options available to you – you need to know where to look. Here are a few steps to help you get a personal loan with bad credit:
1. Check your credit report
Before applying for a personal loan, it’s good to check your credit report and credit score. This way, you’ll know exactly where you stand and if there are any negative marks on your record.
Federal law entitles you to a free copy of your credit report every 12 months from the major credit-reporting bureaus: Equifax, Experian, and TransUnion.
With your credit report in hand, you can try to correct any errors or old debt before applying for a personal loan. A clean credit report will give you the best chance of being approved for a loan with a low-interest rate.
2. Make sure you can repay the loan
The last thing you want to do is take out a loan that you can’t repay. As you shop for loans, make sure you know the monthly payments and when they will be due. Not being able to pay your loan on time will only make your credit score worse.
Calculate your monthly finances and your budget to make a repayment plan. If you have trouble paying, consider other options for getting cash.
3. Compare bad credit loans
While a bad credit score may not qualify you for the best rates and terms, options are still available. Your local bank or credit union may be able to offer you a better deal than some of the national lenders.
Online lenders are also an option if you have a poor credit score. Some of these lenders specialize in loans for bad credit, and they may be able to offer you a loan with terms that are more favorable than what you would find at a traditional lender.
Shopping around and comparing offers from multiple lenders is the best way to ensure that you get the best deal on a bad credit loan.
4. Benefit from pre-qualification
You can shop for loans without worrying about a hard credit check when you are pre-qualified. Pre-qualification can help you avoid the frustration of applying for a loan and being denied due to a low credit score. A hard credit check can lower your credit score, but a pre-qualification will not.
Additionally, pre-qualification can help you determine if you are likely to be approved for a loan. This way, you can avoid the disappointment of being denied a loan after going through the entire application process. Ultimately, pre-qualification is a helpful tool that can save you time and hassle when applying for loans.
5. Get a co-signer if needed
When you take out a loan, your lender will look at your credit score and credit history to determine whether or not you’re a good candidate for the loan. If you have a low credit score or a limited credit history, you may not qualify for the loan on your own. In this case, you may need to find a co-signer.
A co-signer is someone who agrees to sign on to the loan with you. A co-signer agrees to pay back the loan if you can’t. Having a co-signer with a better credit score and credit history can help you qualify for the loan.
Make sure you both understand the loan terms if you decide to take out a loan with a co-signer.
6. Collect financial documents
When applying for a personal loan, it’s important to have all the necessary financial documents. Gather the following financial documents and information:
- Personal contact information – social security number, full name, and address
- Driver’s license – or another form of personal identification
- Personal loan information – why you need the loan
- Tax information – W-2 forms and federal tax return for the last two years
- Bank statements – two most recent bank statements for all bank accounts
- Pay Stubs
- Utility bills or mortgage statement – to verify your address
Lenders can always request additional information, so be prepared to provide that information. The more organized you are, the faster the loan approval process is likely to be. Make sure your documents are accurate and complete.
7. Be prepared for a hard credit check
When you are ready to apply for a personal loan, the lender may perform a hard credit check called a “hard pull.”
A hard credit check may lower your credit score in the short term. As you make timely payments on your loan, you should be able to get your credit score back up in a few months.
Keep in mind, Too many hard credit checks in a short time can make it look like you are applying for loans that you can’t afford.
Read more: Does applying for a personal loan hurt your credit score?
What Are the Types of Loans for Bad Credit?
You might be wondering what types of loans are available if you have bad credit. The most common types of loans and similar products for bad credit include:
Unsecured loans
If you have bad credit, it may be difficult to qualify for a traditional bank loan. However, there are other lenders that offer unsecured personal loans for bad credit. These include credit unions, online lenders, and some banks. You won’t need to provide any collateral, and the repayment terms are usually two to seven years. The interest rate will be higher than for a secured loan, but if you make all your payments on time, you can improve your credit score.
Secured loans
There are many kinds of secured personal loans for bad credit, including mortgages, auto loans, home equity loans, and home equity lines of credit. A secured loan is appropriate if you’ll use the money to buy a car or a house, or if you want to repair or improve your home.
The lender will require some form of collateral for the loan, which may be your car, your house, or some other asset. If you default on the loan, the lender can seize the collateral and sell it to recoup their losses. However, because the collateral secures the loan, lenders are often willing to offer better terms for secured loans than for unsecured loans. As a result, a secured loan can be a good option if you have bad credit but need to borrow money for a major purchase.
Credit cards
Credit cards for bad credit are available and can be a useful tool if you are trying to improve your credit or if you need a secure and convenient way to make purchases. However, it is important to understand the terms of your credit card agreement and to use your credit card responsibly in order to avoid high borrowing costs. Make sure you are aware of the APR on your credit card and try to repay the balance as quickly as possible to avoid paying interest.
If used carefully, credit cards can help you improve your credit score; however, if you do not pay off the balance each month, you may end up paying more in interest than you would have if you had used cash or another form of payment.
Cash advances
Many online lenders, banks and credit card issuers offer cash advances. Cash advance loans are more expensive than secure and unsecured loans and have high interest rates, and should be used in the case of an emergency.
Payday loans
Payday loans have become the go-to option for people in need of quick cash. These short term financial solutions can be taken out without collateral or even an account. These loans typically have high interest and must be repaid in one lump sum payment.
Read more: How Do I Get A Loan If I’m Self-employed?
Ready to Apply?
Are you ready to take the next step towards achieving your financial goals? A personal loan can be a great way to help finance everything from paying for auto-repairs to consolidating your debt.
But it’s important to understand exactly what you’re getting into before applying for a loan or credit card. With our simple, streamlined application process, you’ll be able to find out in no time whether or not you qualify for funds. Whether your money goals are big or small, trust us to help you achieve them. Get started today and start reaching your financial goals!
