Find all available loan options when looking for a personal loan with a bad credit rating. Getting a loan with bad credit rating is not impossible at all, as there are personal loans with bad credit available, either through online providers, credit unions or innovative peer to peer lending platforms. Other options include secure loans, loans with a co-signer and loans through friends or family.
See also the article How to improve my credit score?
What is the meaning of credit score?
At some point in time, you will need a loan. For creditors to advance a loan to you, they will need to cross check your creditworthiness. They will dig deep to know your credit history. No one wants judgment, but when taking a loan, no creditor wants to take a loan that will end up unpaid.
- A credit score is a three digit number that informs potential creditors your likeliness to repay a loan. Credit bureaus are responsible for calculating and determining your likeliness of repaying loans.
A credit score of 700 or above is good and it indicates that you are likely to repay your loans. A score of 800 is considered excellent and it gives creditors confidence that you will pay the debt if they give you a loan.
Credit scores are used by banks, lending companies and other financial institutions to decide whether to give a loan.
Getting a loan with bad credit
You don’t have to stay without getting a personal loan if you have a bad credit score of below 630. There are online credit services that offer credit to people with a bad credit score. Since they don’t majorly base their evaluation on your credit history, they have more requirements than banks. There are also financial institutions that offer personal loans like national banks, community banks, credit unions and online lenders.
Credit unions are cooperatives owned by members. It is recommendable that you first visit a credit union before requesting a loan from online services. Credit unions provide good terms at low interest rates to borrowers with bad credit scores. The maximum percentage credit rate for federal credit is 18 percent. They also offer special programs for borrowers.
Before agreeing to get a loan from one credit union, compare the terms from other credit unions. The credit scores and rating vary from one credit union to another depending on their requirements. One of the ways to compare notes is by pre-qualifying. Pre-qualifying is a preliminary step before getting loan approval.
Take an online personal loan
Online personal loans do not require collaterals like houses or cars. They are generally unsecured and you can get one to pay your bills. Also, they do not necessarily have an interest. They do not have an application fee and they make a decision n whether to give you a loan in a few minutes.
However, some online lenders consider factors such as your employment history and your level of education.
Unfortunately, if you have a bad credit score, you will have limited choices of loans. This may prompt you to pay higher interest rates. You can still get a loan with a bad credit score but somehow, it will be expensive.
Take a secured loan
Secured loans are suitable for people with bad credit and are appealing for a loan. However, you are required to attach an asset; a car or a house as collateral.
Lenders are likely to give you a loan since they are sure they can take the asset if you default to pay the credit. When you repay your loan in full, then you gain full ownership of the asset you had attached as collateral.
Ensure that you do not go for a high-interest loan with a short repayment period.
Get a co-signer
For a co-signer option, the loan interest rate is based credit rating of the person you sign with for the loan. Getting a person with a good credit score entitles you to get a loan. However, make sure you get a person who can trust you that you will repay the loan. In case you don’t repay the loan, you co-signer will also suffer.
Peer to peer lending
Also known as P2P, peer to peer lending provides loans to borrowers with bad credit score. Borrowers post a listing on lenders websites indicating the amount they want and the purpose of the loan. The lenders then analyze and decide the borrower to give a loan.
Borrow from family and friends
Although borrowing from friends and families has in the past created standoffs, it is one of the ways of getting loans. You do not have to qualify to get a loan from family and friends.
However, think about what will happen to your friendship in case you are not in a position to repay the money.
Home equity loan with bad credit
If you have a home, you can use it as collateral to get a loan. These loans generally have a lower interest rate because there is a house attached as security.
If you have a source of income, it is advisable to borrow from a reputable institution since it is inexpensive.