Sometimes life throws you a curveball. Or more than one curveball. So what do you do if you’re already facing financial challenges only to find yourself looking for loans for bad credit?
Having bad credit can be hard enough. Needing a personal loan when you have bad credit can seem like an impossibility.
Credit scores fall into tiers, and the lower your tier, the worse your credit. The worse your credit, the higher your delinquency rate. As far as lenders are concerned you are a risk, and they are less likely to want to lend you money.
Credit scores are divided into 6 tiers. They are:
- 800 to 850 – Excellent
- 750 to 799 – Very Good
- 700 to 749 – Good
- 650 to 699 – Fair
- 600 to 649 – Poor
- 300 to 599 – Very Bad
Having a score under 600 may mean traditional lenders won’t give you money. You would have better chances with a poor or fair score, but you would likely face higher interest rates.
Does this mean all is lost? Or that if you have very bad credit you shouldn’t even try getting a loan?
No. You have options too.
I’ll lay out some tips that should point you in the right direction.
Bad Credit Loans: It Can Be Done
So you’ve established you’re in need of loans for bad credit. Before approaching any lenders, you must lay your groundwork. This means understanding where you stand by looking at your credit report.
How to Read Your Credit Report
First of all, you need to get a copy of your credit report, so you have the chance to see what lenders see when they check you out.
However, note that this step does not provide you with your score. This simply gives you the chance to check if all information is correct.
If you find any errors, you need to connect with the credit reporting agency as well as the bank or credit card holder, etc. who may be reporting the error. They must investigate any errors you bring to light.
The next step is getting your score, and this may cost you. If your current credit card doesn’t offer you access to your score from at least one of the agencies, you may have to purchase it.
Remember, you don’t need to have the highest scores to get credit, but having high scores means it’s easier and cheaper for you to get credit.
- Good credit = higher loans at lower interest rates
- Bad credit = lower loans at higher interest rates
So personal loans for bad credit can be done but at a cost.
How to Improve Your Credit Score
Okay, this is something you should be working toward but it likely isn’t going to help you in the short term.
This means that if you are looking for a loan right now, you really don’t have the time to improve your score, as it’s a slow process.
If your need for cash isn’t urgent, then take the time to bump up your score before applying for a loan. Remember, the better the score, the less the loan will cost you.
is a list of things you can do to improve your score:
- Pay down any debts
- Stop applying for credit
- Pay all of your bills on time
Every time you pay a bill on time or pay back a chunk of debt, your score improves. And every time you apply for credit your credit score drops.
Since applying for credit every once in a while is considered normal, these small dips aren’t alarming. But if you suddenly applying for a lot of credit, that is viewed as a bad sign, so don’t do it–even if you have good credit.
5 Best Alternatives for Bad Credit Personal Loans
Now that you know your credit score and have reviewed your credit report, it’s time to explore personal loans for bad credit.
Talk to Your Financial Institution First
First, find out what kind of requirements your bank or credit union has for loan applications.
Approaching your own bank is a good idea since they can access your history and have a better sense of your financial health. If you use a credit union instead of a bank, this might be a plus, since there is a good chance they aren’t as strict as a bank.
Another plus for going to your own financial institution is this is likely where your pay gets deposited. There is no better proof of income than that.
Talk to a loan officer at your bank or credit union. Ask them if you would be able to get a loan, and if not, what you need to do to get there.
There are several payday lenders such as Advance America who offer smaller loans at higher interest rates.
These loans are typically short term which means they need to be paid back when the borrower receives their next paycheck.
Do your research on the different payday lenders as they will all have their own terms. Many can cost you between $10 and $30 for every $100 and most of them have a fairly low cap at around $500.
Peer to peer (P2P) lending is a form of lending where the borrower gets money from peers or individuals, not from a traditional bank or lender.
Some of the more popular P2P lenders are:
Note that interest rates can be quite high for those with the worst credit scores. For example, LendingClub has rates as high as 35.89% for those who are the least creditworthy. And there may be additional fees applied.
Having said that, with 3 and 5-year repayment options it is possible to keep your payments fairly low.
Avant’s platform is targeted to consumers who have low credit scores, so they already have customers like you in mind. However, you do still need to have a minimum credit score of 580 to be approved for a loan.
Despite that 580 minimum, however, having a score of at least 600 seems to give you a bit more of a chance with them.
Again, the cost to borrow is high, with the highest APR at 35.99% plus a fee of 4.75%.
OneMain Financial says they are lending done human. They offer a variety of loans, including unsecured personal loans. Like Avant, their target customer is one with bad credit. Unlike Avant, they do not have a minimum credit score requirement, so those in the worst of situations might want to consider OneMain Financial first.
As expected, the rate is high, at 35.99% but they do not charge a fee.
Note that they may require an in-person appointment before approving and funding a loan.
Bad Credit Loans
Clearly, it is possible to get a personal loan even if you have bad credit. However, it does come at a cost. Since you’re considered to be a risk—a higher likelihood of defaulting on your loan—the interest rates are quite high.
If possible, do all you can to improve your credit score before applying for a loan.
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