Most banks and lending agencies will check your credit score when evaluating loan applications. The approval rate is lower for applicants with bad credit scores. A credit score is usually determined by your payment history, credit usage, new credit, length of credit history, and total debt and credit. Scores between 580 and 669 are considered fair whereas 300 to 579 are termed as poor. While your access to loans when you have fair and poor credit can be tough, it is still possible. This article highlights some key tips that can be helpful when applying for a personal loan with bad credit.
Check Your Credit Score
Before you start applying for loans, check your credit score. If you notice any errors on your report, call the credit bureau and have them correct it for you.
Find A Co-signer With A High Score
Having a co-signer with a high credit score will boost your chances of approval. Additionally, you will be in a better position to qualify for a lower interest rate compared to when you apply for a loan without a co-signer. Your co-signer will be responsible for your loan repayments if you fail. Therefore, if you get someone to co-sign for you, work hard and pay back your loan on time to avoid giving them a financial burden.
Get A Secured Loan
A secured loan is easier to get when you have bad credit. This is because when you have a security to reassure the lender that the money will be paid back; they will barely take into account your credit score. Lenders will give you an amount lower than the value of your asset. Secured loans also come with a lower interest rate compared to unsecured loans. You can get a secured loan with your house, car or any other asset as the security. However, with a secured loan, you are at risk of losing your asset if you fail to make payments as agreed.
Credit Unions Are Good Too
Credit unions are not very strict thus you have a good chance of getting approved for a loan with bad credit. Additionally, the interest rates for the credit unions can be lower, especially compared to banks.
Establish A Strong Case
Whether you are borrowing money from a bank or a credit union, collect enough evidence to show that you are capable of repaying the loan. Some of the things that can help include proof of employment, payslips, business revenue reports, tax returns, assets, bank statements and bill payments among others. Your chances of getting approved will be higher when you can prove your ability to pay the loan back.
Look Into No Credit Check Loans
If you have an emergency and need cash fast, consider no credit check loans. These are loans where the lender will not take into account your credit history when processing your loan. The loans are beneficial for individuals who have no credit history or those with a bad credit score. The lender will look at other factors such as your ability to pay back the loan when processing your application.
Apply For The Least Amount Possible
Applying for a smaller amount will boost your chances of approval. Additionally, the smaller the debt, the faster you will be able to get out of it and work on improving your credit score. Thus, even if the lender says you can qualify for a larger amount, fill in only what you need.
Compare Different Lenders
Since personal loans with bad credit can have high interest rates, review different lenders and choose the one with the best terms. However, making too many applications is not advisable. The trick is to evaluate the eligibility criteria before you submit your applications. Consider making use of lending networks for a faster comparison of bad credit loans. Most lenders will give you the interest rates and thus you can easily tell how expensive the loan will be even before you apply for it. Note that loans come with processing fees, so check this too when evaluating the total cost of the loan.
Ask Help From Someone You Know
When getting help from banks and online lenders looks hectic, consider asking for help from someone you know. This could be a colleague, a friend or a family member. This is a quick way to get money and a cost-effective one, especially if the lender agrees to give you the money without charging any interest. Once you find a lender, write an agreement and have a witness sign it too. An agreement is essential, even when you are borrowing money from your blood relatives. A written document will prevent conflict, which can destroy friendships and family ties.
Go For Loans With A Convenient Repayment
A loan with direct debit repayments is the best, especially when applying for an installment loan. The amount will be debited directly from your account and this eliminates the possibility of missing a payment date. A missed payment will hurt your credit score further.
Check Lender Information On Better Business Bureau
The final step when looking for a personal loan lender is to review the lender’s information on the Better Business Bureau. Be very careful, especially with online lenders whose deals are too good to be true. Don’t fill in your details on any website until you have established that the lender is legit and accredited by BBB and has a good rating. Read the customer reviews as well.
Finally, after your loan has been approved, work on improving your credit score. You should work on proper financial planning, paying debts on time, and boosting your revenue sources to avoid falling into debt. Building a good credit score now will help you in the future when you apply for other forms of financing such as business loans and mortgage. If the loan that you are offered currently is too expensive, it would be advisable to wait a little while for your score to go up. It is better to wait a little longer than get a loan you cannot afford to pay back.