Getting a personal loan becomes one of the most difficult jobs if the borrower has bad credit. Even if the borrower qualifies for the personal loan, they have to pay a lot of different fees and high-interest rates.
Luckily, there are some lenders across the country who are a little more lenient as compared to others in the market and are willing to facilitate people with bad credit. The key to getting a personal loan with bad credit is to simply conduct extensive research and put in some extra effort.
What Is Considered a Bad Credit Score?
Credit scores are usually rated anywhere from 300 to 850. Although there is no official range that can be categorized as “bad credit,” generally, it’s recommended to have a credit score above 650. People with credit scores under 650 are seen as high risk and often have to pay higher interest rates.
It’s also important to note that the credit score is generally made up of five parts, which include:
- Payment History that describes if all the monthly payments are made on time or not.
- Amounts owed that show the total amount of credit utilized every month. It’s recommended to use only 30 percent of the credit limit, or the credit score will be affected.
- Length of the credit history, which simply describes how long the credit has been used.
- New credit, as the name suggests, refers to if the individual has applied for another card. Applying for a card is not usually seen in a positive light. Therefore, it’s recommended to hold off applying for another credit card until there is a genuine need that can be described proficiently in front of lenders.
- A mix of credit which may include car loans, credit cards, total mortgages, and student loans. If these loans are dealt with at the right time, then the credit score will improve. Failure to pay on time or at all will not only decrease the credit score but can also reflect poorly on the credit history. Lenders will then be cautious of approving the loan application because they might not consider the borrower trustworthy of repaying the loan.
Steps to Get a Personal Loan With Bad Credit
1. Search for lenders who are lenient
When it comes to qualifying someone for a personal loan, the majority of lenders look at their credit score and income. However, some lenders may also look for other factors, such as education and experience. Therefore, the first thing a borrower should do is search for lenders who consider non-traditional factors when approving a loan. There are also lenders who offer loans in only specific categories, such as car loans, and searching for specialized lenders can be beneficial.
No two lenders will offer the same rates or have similar requirements. Therefore, it’s important to have a couple of options and compare. Some lenders may offer affordable rates. Others might provide support in other areas, such as credit building and managing loan payments.
2. Consider the loan costs
Finding a lender who is ready to approve the loan is not enough. Obviously, the loan has to be repaid, and there might be high-interest rates and fees involved as well. Therefore, when considering the loan, it’s important to identify the total costs of borrowing. The borrowing cost consists mainly of interest rates and fees. Some lenders may even charge an application fee before considering the case.
There are personal loan calculators available online that can help in estimating the monthly loan costs before applying for a secured loan. Taking into account all of these costs is important in order to calculate the monthly budget and identify if the loan cost is something that the borrower can cover. There is no point in taking a loan that cannot be repaid later because it will only lead to additional burdens on the financial situation.
3. Look for co-signed or secured options
Co-signed loan applications can help people with bad credit secure loans at a faster rate. A co-signed personal loan means that the borrower also has to provide information such as credit history and income details of another individual they know. The other individual vouches for the borrower and agrees to pay the loan on behalf of the borrower if they are unable to do so.
On the other hand, secured loans require the borrower to offer collateral, such as a savings account or a car, in case the loan is not repaid at the given time.
Where to Look for Loans With Bad Credit?
Credit unions are usually the safest options when it comes to getting a loan with bad credit. This is because credit unions consider a wide variety of factors when making a decision. Federally chartered credit unions may even offer a lower rate since the APRs are capped at 18 percent.
There are also various online lenders who can help with getting a personal loan with bad credit. Online lenders have become quite popular in recent years because of the features they offer, like personalized financial advice, fast funding, and online tools.
The Final Takeaway
Just about anyone needs a personal loan at some point in their lives. From buying homes to paying for education, personal loans can facilitate long-term endeavors. However, a bad credit score can influence the borrower’s ability to get a loan. Therefore, borrowers with bad credit have to put in extra effort and look for alternative ways to get personal loans. Fortunately, there are some good options available in the market that can help borrowers get personal loans and also rebuild their credit scores over time.
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