How to Get a Loan With Bad Credit: Consider All Your Options

Having a bad credit score is a situation anyone would gladly avoid if possible.  However,  there are many ways someone could achieve a bad credit score, whether because of poor financial decisions or plain bad luck. A situation like this is quite serious because in order to get out of the financial trouble you would need a loan from a bank,  but your bad credit score prevents that. The question is how to get a loan despite having a bad credit score?

 What is a bad credit score?

Credit score gauge

Credit scores are the numeric expression of the likelihood someone will repay a loan.  Numeric values range from 300-850,  and higher the number the possibility of repaying is bigger and vice versa.  Every score lower than 650  is a bad credit score.  People that belong in this category are seen as high-risk clients,  and their interest rates are the highest.  Usually,  those people are the best candidates for bad credit loans.  Not every lender has the same definition of good and bad credit score. Some of them don’t want to do business with anyone under 650, while others gladly deal with sub-650 creditors.

Credit Score and Borrowing

The higher your credit score is the better borrowing conditions you will get. People with good to excellent credit ratio will get the lowest interest rates and better terms,  while those in poor and extremely poor categories may not be approved for a loan at all,  and even if they do, their interest rates will be significantly bigger. There are many factors that affect the credit score, and it’s very interesting to see the relation between score and age of customers. For example,  people older than 60 have an average credit score of 743,  while those aged between 18-29  have an average score off 652  only.

Getting a Bad Credit Loan

To get a credit loan with a bad credit score, the best course of action would be asking for an in-person interview in order to convince a bank or credit union loan officer that you are not a risky customer.  Before going to the interview, make sure that you are well prepared, and that you have all the necessary documentation that will prove that you are trustworthy and sufficiently financially stable. Stability is the keyword, lending institutions love it, and if you show them that you, for example,  lived at the same place or had the same job for several years, it would contribute a lot to your goal. It would also help a lot if you can show your tax returns, your job history,  your personal assets, bank statements for checking and saving,  and so on.

Although not all of those documents are required. anything that proves you have been responsible with your money will improve your chances in getting a loan

Pros and Cons of Bad Credit Loans

If you are in a situation of needing a bad credit loan, it means things aren’t very good.  The most responsible thing you can do is not to make it even worse.  Be very careful and considerate when choosing your lender. Suspicious behavior is when a lender doesn’t ask for a credit check,  doesn’t check your finances, can’t be found for customer reviews, and guarantees you will be approved. Those are major red flags,  and the best thing you can do is to look elsewhere for a lender.  It is quite obvious to point out the good things about bad credit personal loans. First of all, they are fast and you can get your money in a matter of hours. Next, the interest rates are lower,  and if you go managed to get a bad credit loan,  your interest rate will be lower than one for your credit card debt. Lender options are also plentiful, especially with the increase of peer-to-peer lending business every year. Depending on your lender,  terms for your repayment could stretch from 1 to 5 years, and if you managed to make payments on time your credit score will raise,  which will put you in a much better situation next time you needed a loan. However,  downsides of bad credit loans are equally obvious. Interest rates are way higher,  fine print sometimes contain unexpected fees and penalties, sometimes you might have to put your house or car at risk to get a loan,  and not every online lender is licensed in your state. Make sure that you consider every option you have before choosing a lender. Fortunately, lending business is flourishing,  so you will be able to compare offers and find the one best suited for your needs.

Where to Get a Bad Credit Loan?

Considering that most big banks won’t even consider giving loans to people with bad credit score,  there are many outlets dedicated to those people. It would take some time though to find affordable interest rates and repayment terms. If you don’t have time to improve your credit score by being financially responsible,  there are several sources you can borrow money from even if your credit score is bad.

For starters,  there are credit unions that might be willing to make a judgment about your credibility based on your personality and your promise to pay,  rather than your credit score. This especially works if the credit union is affiliated with your employer or community-based.  Another merit of credit unions is lower interest rate which is 18%  at its highest, compared to banks which will give you as much as 36% interest. Furthermore, community unions are actively looking for people to borrow their money.  there are specialized credit unions for Armed Forces Veterans or public workers.

Next option would be to borrow money from your family and/or friends.  Financially,  this move makes a lot of sense,  because family and friends will cut you some slack concerning paying terms and interest. Also,  you won’t have to go through the exhausting process of approval.  The bad thing about this is that failure to fulfill your obligations toward your friends or family will have much harder consequences than a bad credit report. the best way to avoid that is the treat any loan from someone you know as an official transaction,  with documentation and legal record,  including a written contract.

If you are unable to find any friend or family member willing to borrow your money,  you can ask an acquaintance with a good credit score to be your co-signer. The qualified co-signer will influence your lender to give you better loan terms.  the terms will be raised on the credit score on the person with good credit,  and that person will be equally responsible for the payment.  that means if you fail to repay the loan,  both you and your co-signer will suffer the consequences.

Another way of getting a loan with a low interest rate is to apply for a home equity loan. That way you will use your home as collateral,  so you can apply for the loan no matter how your credit score is bad. The interest rate is also tax deductible,  so it’s another good side of this kind of loan.  The bad side is that you will lose your home if you don’t make your payments on time. This sort of loan is also known as a secured loan because it has an asset that guarantees the payback.

If everything else fails you can find the solution for your financial troubles online. There are online platforms dedicated to giving bad credit loans directly from another person or group of individuals rather than from an institution.  It’s called peer-to-peer lending,  and it’s usually much more flexible than any official loan you might get. Additionally,  P2P sites will help borrowers verify the credentials of certain lenders and calculate the risk factors.

Finally, there are Personal Loan Lenders,  which are basically online banks without offices that offer bad credit loans for things like consolidating debts and repairs. The best thing about them is that they work fast,  being able to deposit funds in a matter of hours or days,  often without any application fee. Loan applications for these lenders are simple and easy to fill out,  and while credit scores are part of decision making,  it’s not crucial and some personal loan lenders don’t even use official credit scores.  Some of the factors include a college degree,  employment history,  and which school you got your degree from.

Conclusion

Having a bad credit score can seriously hinder your business ability,  and usually happens at the time when you are needing money the most. There are several Sources you can borrow your money from even if you suffer from a bad credit score.  Most of them offer quite favorable terms compared to banks,  but nevertheless,  the importance of caution when choosing a loan cannot be overstated.

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