Can I Get a Personal Loan With Bad Credit? Here’s What You Should Know
A lot of people seek out personal loans when financial difficulties occur, but if you are a person with bad credit, getting a loan may be difficult. If this is the case then you’ll be glad to learn that certain lenders will assist those borrowers with credit background isn’t perfect.
Here are a few problems and opportunities for borrowers who are asking “How can I get a personal loan with bad credit?”
What’s the Minimum Credit Score for a Personal Loan?
Each lender sets their own set of criteria, such as the risk tolerance in determining an acceptable credit score needed for the personal loan, says Rod Griffin the senior advocate and director for public education at Experian, the credit bureau Experian.
“Generally, when you think about subprime borrowing, 680 is what we think of as near prime,” he states. “So you may not qualify at that point.”
A score of around 700 is sufficient to qualify for an personal loan, “but probably not at the best rates,” Griffin states. “To qualify for the best terms, you’re generally going to need scores of 750 or greater.”
The lenders also consider their credit score to other aspects that could affect your capacity to repay a loan Griffin states, which includes:
A lender will want to see how quickly you repay the any money borrowed prior to giving you an personal loan.
“If you have a history of failing to repay debts – things like lots of late payments or collection accounts – that’s going to make it more difficult,” the expert says.
What Is the Best Loan for Bad Credit?
If you’re struggling with a poor credit score but are still hoping to secure an personal loan, know that some lenders are specialized in helping borrowers with bad credit. Start by looking through this U.S. News guide to the top lender to help borrowers with bad credit.
Before you submit an application for an personal loan, ask yourself whether this is truly the best choice for you according to Todd Christensen, education manager at Money Fit by DRS Inc. is a national nonprofit credit counseling service. The most suitable loan for bad credit could be no loans even.
“If you’re taking out a personal loan with bad credit, you likely have accounts in collection or with payments you’ve already missed,” Christensen states. “Using one loan to pay off another isn’t a debt-reduction plan. It’s a debt shuffle.”
Instead, you should get to the bottom of your credit and credit problems before taking out a loan according to him. “If you have bad credit, adding another loan is like adding fuel to the poor credit fire,” Christensen states.
In general, those with weak credit must consider different options prior to deciding on the possibility of a personal loan, agrees Lauren Anastasio who is a certified professional in financial planning at SoFi.
“If you have poor credit, a personal loan – assuming you’re eligible – could cost far more than other types of financing,” she says.
How Can You Get a Good Loan if You Have Bad Credit?
Finding an unsecure personal loan with good terms in the event of bad credit can be difficult but it’s not impossible. If you require an personal loan and your credit isn’t great, you must:
Consider looking into lenders with bad credit. “For better or for worse, there are lenders all around the country willing to offer personal loans to consumers with poor credit ratings,” Christensen declares.
Enhance your credit health. Work on breaking bad credit habits to raise or even keep the credit score.
“Lenders find boring to be very sexy: paying on time, every time, not having huge swings in your balances, keeping balances low,” Griffin states. “Slow and steady is very appealing.”
Demonstrate that you are a steady source of income. If your financial situation recently improved and you’re looking forward to the credit score to improve Try to prove to your lenders that you’re in a good place to be able to take out.
“If a personal loan is your best option, the best thing you can do is provide evidence of consistent and reliable income,” Anastasio states. “A reliable income stream gives a lender peace of mind that you’ll have resources available to make your payments.”
Accept a loan with a shorter duration. If you choose a shorter repayment term, it may result in a lower rate. “Typically, the shorter the repayment period, the lower your interest rate,” Anastasio states.
Expect lower rates of interest on personal loans that have two-to-three-year repayment terms, and higher rates for loans that have five or seven-year duration, she says.
5 Alternatives if Your Application Is Denied
A lender’s decision to deny your application denied your loan application doesn’t necessarily mean you won’t be able to take out an personal loan, Anastasio says. Here’s how you can get one:
Speak to the lender who rejected an proposal. Another arrangement might still be acceptable to the lender. “Start by speaking with the lender and seeing if they would approve you for a different loan amount or term,” Anastasio advises.
Take a look at other lenders. Find the one that is more suitable to your specific needs and situation. “You are always able to shop around,” Anastasio states. “Underwriting criteria will vary from one financial institution to the next.”
Think about borrowing through you 401(k). This option doesn’t require an credit check and will be less expensive than the loan at a bank she suggests. “But there could be tax implications if you leave your employer before paying the balance back,” Anastasio says.
Ask your family members and other family members for help. Check local nonprofits for special-purpose loans or peer-to peer lenders such as Prosper. Requesting assistance from small banks as well as credit unions is another option but having a bad credit score may limit your options.
Beware of the worst alternatives. People with bad credit might consider payday or title loans. Both types of loans are costly and may have APRs of 300 percent or more, in addition to charges for rollovers if you extend deadlines, as per the Federal Trade Commission. You may also lose your car if are unable to repay the loan on time even if you’re making small payments.