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Getting A Personal Loan With Bad Credit

Getting A Personal Loan With Bad Credit
by John Carlucci - August 16, 2022,

Bad credit personal loans function similarly to standard personal loans, but they offer borrowers with credit scores below 580 options. Loans for this purpose are mostly unsecured, meaning no collateral is required, but some lenders may also offer secured loans.

A Guide to Choosing the Best Personal Loan With A Bad Credit

You should consider more factors than your credit score when choosing a lender. The best ones have clearly defined pricing, such as interest rates and fees, rapid funding and approval times, flexible repayment terms, and a variety of loan options.

It is relatively difficult to get a loan if you have poor credit. However, you don't have to settle for an unreliable or expensive lender. Our recent research showed that Upgrade is the best overall lender for people with bad credit due to the fact that individuals with bad credit can borrow loans as small as $1,000 and receive money as soon as the next day.

There is great availability for Upgrade nationwide, and its current APR is competitive at 5.94% to 35.97%. You can get a lower rate if you qualify with a co-applicant who has excellent credit, enroll in auto-pay, and use the proceeds to repay existing debts. Your loan can be made more affordable with these best-in-class features.

Understanding Bad Credit Loans

The term "bad credit loans" refers to loans for people with poor credit scores, usually under 579.

Personal loans come in many forms, but unsecured loans are the most common. There's no collateral involved, but you'll have fixed interest rates and fixed monthly payments, both of which will appear on your credit report.

Unlike loans offered to people with better credit, unsecured personal loans for bad credit often come with higher fees and higher interest rates.

Are You Eligible For Bad Credit Personal Loans 

You'll probably need to meet certain criteria if you want to apply for a personal loan with bad credit. There are several important factors to consider:

You should have a credit history that reflects your credit issues have been resolved: If your current credit history shows that you have fixed the problems, lenders are more likely to overlook your bad credit score. Generally, this means you are not in arrears on any debts, judgments have been paid (e.g., tax liens), and any bankruptcies have been resolved. The objective is to ensure you won't have problems repaying your new loan due to your old issues.

Loan funds will help improve your overall financial situation: Other factors that lenders consider include whether the loan will improve your credit score. Getting a loan to consolidate current debt and pay it off sooner could improve your credit and lower your interest rate. In addition, interest charges will be reduced.

Your income is sufficient to pay off the debt: Most lenders require income proof before approving a new loan. Your debt-to-income ratio will be used to determine this. Consider your budget before moving forward to determine if you can comfortably afford the monthly payment.

A Comparison Of Personal Loan Lenders That Accept Bad Credit

Choosing a lender for a bad credit personal loan requires considering these factors:

Loan amounts: Select a lender that offers the loan amount you need. It may be a problem if you just need to take out a loan of $500 and lenders only offer loans of $5,000 or more. For example, if you need to consolidate a lot of debt, you might need a lender that offers larger loans.

Ease of application: Lenders often offer online applications that allow you to apply in minutes and learn if you qualify without harming your credit.

APR range: The cost of a loan includes interest as well as fees, like origination charges. The annual percentage rate, or APR, shows the cost of a loan each year. Therefore, when choosing a personal loan lender, it's more important to consider the APR instead of the interest rate or origination fee.

Repayment term length: Besides the APR, repayment term plays an important role in determining the size of your loan payment. By choosing the shortest repayment term possible, you'll be paying less interest, resulting in lower borrowing costs overall. In this case, however, the monthly payment will be higher. Your budget and needs should be taken into account when selecting a lender.

Lender’s reputation: Ensure the lender you choose is reputable. You can also check the Consumer Complaint Database maintained by the Consumer Financial Protection Bureau for customer feedback. You will be better able to choose a reputable lender if you do your due diligence. 

Funding speed: If you need your money fast, choose a lender that offers next-day funding (there are some lenders who also offer same-day funding). Be aware that funding times are not guaranteed and will be affected by your bank as well.

Applying For A Personal Loan If You Have Bad Credit

It's relatively easy to apply for a personal loan even if you have bad credit, and it's similar to applying for all types of loans. A loan application and loan offer will need to be filled out, the terms reviewed, and you'll be paid once the loan is approved. Depending on your lender, you may have to create an account online.

An applicant might be required to submit identification documents such as a government-issued ID or a driver's license, as well as proof of residence or income. A soft credit check is done by most lenders to determine whether they qualify for a loan. Your credit score is not affected by a soft credit check. The terms and conditions of the loan will be sent to you once all of that has been completed, and your application has been approved.

Take the time to carefully review those documents so you can understand exactly what's expected. This includes your monthly payment, what you can and cannot use the loan for, as well as your interest rate.

Frequently Asked Questions About Personal Loans With Bad Credit

Is It Easy to Take Out a Personal Loan with Bad Credit?

The application process for bad credit loans is usually more difficult than for loans with excellent credit, but there are still plenty of lenders who offer these loans. If you're able to pay the loan and aren't delinquent on your existing debt, you may be able to get a personal loan even with bad credit. 

In some cases, you may have to work on repairing your credit if you have active credit issues, such as delinquent loans or collections accounts. When you have credit issues, you can get help from a variety of sources, but credit counseling is a great place to start.

What Are the Different Types of Loans for Bad Credit?

There are several types of loans available to people with bad credit, including:

Payday loans: While they're extremely easy to get, payday loans come with high interest rates. Payday loans are risky debts that are hard to repay, and it can be easy to end up in a cycle of using them over and over again. Therefore, it is recommended to avoid payday loans entirely and look for other funding options instead.

Secured loans: In addition to mortgages, auto loans, home equity loans, and home equity lines of credit, there are many kinds of secured loans for people with bad credit. For example, you might use a secured loan for buying a car, repairing your house, or improving it.

Cash advances: Banks and alternative online lenders often offer short-term loans with cash advances, as do many credit card issuers. A cash advance, on the other hand, is usually more expensive than a secured or unsecured personal loan, and it usually carries a high interest rate, so it is best to avoid taking out one of them.

Unsecured loans: Generally, banks, credit unions, and alternatives to online lenders offer unsecured personal loans to borrowers with bad credit. Typically, repayment terms are two to seven years, and no collateral is required (like your vehicle or home). 

Credit cards: Many banks offer credit cards that work for people with bad credit, and some of those cards come with features that can help you rebuild your credit. It is true that credit cards are convenient and secure payment options and that they can benefit your credit if you use them responsibly. Nevertheless, their APRs are generally very high. In order to avoid high borrowing costs, make sure you repay the balance as soon as possible.

How Much Interest Can I Expect With Bad Credit?

You're considered a subprime borrower if your FICO score is below 670. Credit scores below 580 fall into the "Poor" category.

For loan approval and pricing, every lender determines its own criteria (including credit scores). Because of this, you can't predict exactly what APR you'll receive for a personal loan if you have bad credit. An average personal loan can have an interest rate of 4.99% to 36%. A poor credit rating will probably result in higher rates.

Where Can I Get a Personal Loan with Bad Credit?

A bad credit score can make obtaining a personal loan difficult. Nonetheless, multiple lenders may be willing to work with you (although at a higher interest rate). The following are the two primary sources of loans:

Local lenders: You may find a loan officer who is willing to work with you at your local bank branch or credit union. Personal relationships might influence how they assess your application, including not taking your credit score into account as much as you think. In addition, they may be able to offer you better terms, lower interest rates, and fewer fees even if you have a bad credit history.

Direct lenders: Direct personal loans are offered by financial institutions that approve you. There are many types of institutions that offer these services, including local banks, credit unions, and online banks. Direct lenders who are willing to work with credit-challenged borrowers are your best bet if you have bad credit.

Online personal loans: You can apply online for a personal loan, and your application is sent to lenders who may approve your request. When you submit one form, you can often compare offers from several lenders at the same time.

How Can I Get Guaranteed Approval For a Personal Loan?

Getting a personal loan with bad credit is not guaranteed, but you can increase your chances by taking the following steps.

To start with, choose a lender that's more accommodating to borrowers with bad credit (you can check your credit score for free). In the case of a low credit score, you can work on improving it before applying for a loan, but if you need funding right away, you should look for a co-signer with good credit to help. When you co-sign on a loan, you guarantee repayment through them, even if you cannot, and that might make the lender see you as a lower risk.

Last but not least, make sure you apply with multiple lenders. You have a better chance of finding a lender who will approve you if you try multiple lenders. To avoid further damage to your credit score, make sure they perform a soft credit check rather than a hard one.
If you need help finding the right personal loan, personal loan search engines can help match you with the best suitable loan options.

Author

  • John has worked alongside Real Estate Giants across USA and Canada for decades. Since he started Prudentialcal, he has been actively rendering service as business adviser to many companies in the real estate industry. He formed Prudentialcal in hopes of providing the most reliable stories and information there is in the vast industry of real estate

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