Unexpected expenses can happen to anyone, but what do you do if you need cash and don’t have stellar credit? Here’s how to get a loan with bad credit.
30% of households in America have less than $1,000 in savings. That means that over 97 million people don’t have the money necessary to financially deal with a medical emergency or any other unforeseen circumstance that rears its head.
Therein lies the value of being able to easily obtain a loan. Small personal loans ranging from a few hundred to a few thousand dollars provide millions with the tools they need to build a bridge from today’s problems to a brighter tomorrow.
But, what if you needed to get a loan but your credit was bad? Would you be able to get the help you need?
Fortunately, there are plenty of steps you can take when it comes to how to get a loan with bad credit.
Below, we share some insight on how you can get approved for a loan despite your credit score.
10 Tips for Getting a Loan with Bad Credit
1. Assess Your Credit Score
The first how to get a loan with bad credit step that every prospective borrower must take is understanding what their credit score is.
A lot of people have an idea that they have bad credit but most don’t know how bad.
Knowing your exact credit score will give you the information you need to apply to loan products that will give you the highest chance of approval. But, it will also help you to understand how much ground you need to cover when it comes to improving your credit score (more on that next).
To get a handle on what your credit score is, consider leveraging a free service like Mint which has a great credit checking tool. Learn how you can request your free credit report from the major credit bureaus.
Knowledge is power when it comes to credit. Don’t limit your options by not understanding your situation.
2. Start Building Your Credit
The best method on how to get a loan with bad credit is to build your credit and expand your borrowing options. While this solution isn’t as immediately gratifying as the other suggestions on this list, it’s the solution that’s going to help you improve your financial future.
There are a number of ways you can build your credit including:
- Paying down your existing loan balances
- Not over-applying for credit
- Lengthening your credit history
- Not missing payment dates
- Settling accounts that are in collections
- Disputing any credit reporting errors
- Working with a financial planner
Any one or a combination of the above suggestions can help get you on track to qualify for a wide array of excellent loan products in the future.
3. Get a Secured Loan
The reason why credit matters when you’re applying for loans is because it gives lenders assurance.
With a good score, lenders feel that there’s a good possibility that you’ll pay them back. With a bad score, lenders feel like they’re putting their money at risk.
To help lenders mitigate their risk when you have a bad credit score, you can “secure” the loan which means put up collateral.
With a secured loan, you can offer property like stocks, boats, cars and a number of other things that have value (get more info on car title loans). If you fail to pay back your loan amount, your lender can recoup their losses by repossessing the property you offered.
If you’re confident you can repay your loan, this is a suitable means for securing a loan. Further, if you’re not confident, secured loans can further damage your credit and lead to the loss of property.
4. Find a Co-Signer
If your lender doesn’t trust you to pay back your loan, maybe a friend or family member does.
If you can get a person who cares about you to come into the bank and co-sign your loan, lenders will consider their creditworthiness when choosing to lend to you. This can substantially increase your odds of having your loan funded.
The only downside to co-signed loans is the risk it presents to the co-signer. If you don’t pay back your loan on time, your co-signer will be on the hook for the loan balance.
Because of that, co-signed loans can be the root cause of relationships getting damaged. Take that into consideration before seeking the help of a co-signer.
5. Try Banking with a Credit Union
One of the most popular methods people exercise is joining a credit union.
Credit unions are like standard banks except they’re less profit-driven. Given that fact, they’re more open to helping people with bad credit obtain the financial help that they need.
The biggest barrier to working with a credit union is that you have to be a member in order to join and membership is not available to all people. In most cases, you’ll need to work in a certain industry, reside in a certain city, or be affiliated with a local church in order to join a credit union.
Note that while credit unions make the process of getting a loan with bad credit easier than banks, they do still have standards. That means that your loan applications may still get rejected when working with a credit union.
6. Look at Online Lenders
It used to be that borrowers were limited to their surrounding area when it came to finding lenders. Thanks to the internet, that’s no longer true.
There are thousands of small personal loan lenders that work solely online. Many of them are used to working with people who have less than stellar credit.
To find these lenders, try conducting a Google search like “bad credit online loan”. Chances are you’ll get inundated with potential lenders.
Take extra care assessing online lenders and their products. Given the less regulated environment of the internet, you’re more likely to run into predatory lending situations.
7. Explore Peer-to-Peer Lending
If you can’t borrow from a bank, you can get a loan with poor credit from your peers.
Peer-to-peer lending connects you with everyday people who are willing to lend you the money you need just like a bank would. To get started trying to find a peer-to-peer lender willing to work with your credit score.
The process isn’t like crowdfunding. You sign up to become a member of the lender’s website. From there, several checks get run to determine if you can borrow money.
While they’re more flexible with your credit score than a traditional lender, they won’t approve you if your score is poor.
8. Consider Payday Loans
Payday loans get a bad wrap because of their high-interest rates. Still, there’s a reason why millions of people rely on them every year.
With a payday loan, all you’ll need to qualify is a bank account, proof of income, and to be a legal adult.
Upon qualifying, you’ll write your lender a check for the amount you need to borrow plus a very high interest rate. Then, when your payday comes in, your lender will simply cash your check and pay themselves back.
No credit checks are required for payday loans making this option a how to get a loan with bad credit favorite solution.
9. Compare as Many Loans as Possible
It’s crucial that you do your diligence when you’re seeking bad credit loans.
For starters, the more loans you apply for, the more hits your credit score will take. That means you only want to apply for loans that are going to give you the highest chance of getting approved.
Second, people with bad credit get targeted by subprime lenders with loan products that are predatory. These loans have ultra-high interest rates and a multitude of obscure fees.
Taking on one of these predatory products could lead to your being stuck in a vicious debt cycle.
The best way to limit your loan applications and protect yourself from predatory lending is to compare a lot of different products, read reviews, and do as much research as possible.
Doing your diligence up front will significantly raise your odds of finding a loan that does more to help you than hurt you.
10. Talk to Family and Friends
If you’re lucky enough to have a tight-knit family or friend circle, consider asking them to borrow the money you need.
It can be hard to ask people you love for help but if you explain your situation and lay out a clear plan to pay them back, it could save you hundreds of dollars on interest and fees.
How to Get a Loan with Bad Credit Tips: Wrap Up
We’ve shared with you a number of ways on how to get a loan with bad credit. Take the time to understand each of our suggestions and leverage whichever tips sound the most helpful to you.
For more information on how to take your financial situation to the next level, consider diving deeper into our educational finance content at Fincyte today!
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Author: Cathy Carter