Getting a loan with bad credit can be extremely difficult as many financial lenders will solely judge an application off of the individual’s credit score. A bad credit score is typically the result of bad financial habits and money management. This shows to potential lenders that you are at a higher risk of defaulting on a loan, meaning the lender will not get their money back.
The typical loans that are available for persons with bad credit are low-dollar, high-interest, and short-term. These are typically payday loans and car title loans. Most people can get them as long as they have a checking account, proof of income, and a car. Payday loans tend to make individuals’ debt even worse due to such high fees. In fact, many payday loans are outlawed in numerous states throughout the United States.
Although you may have a bad credit profile, there are some things you can do to increase your chance of being approved for a loan. It’s important to remember that getting another loan is not going to solve your financial issues and it should only be considered if the terms are doable for your budget. If you can’t afford the terms of a loan then don’t agree to it, that will only make your credit worse as you miss more payments.
Get A Cosigner
This is probably the simplest way to help boost your credit approval for a new loan. Finding a responsible co-signer that has a good credit history will provide the bank with more security. Discussing ahead of time with your co-signer about the loan purpose and how you plan to repay it is important. The co-signer will be responsible for any payments that you do not supply and could lose their collateral if they put any up on the loan if they don’t pay the bill for you.
Use A Home Equity Line of Credit
If you currently own a house it’s possible to get approved for a line of credit based off of your equity. Since your house is being held as collateral for the loan, you are more likely to get a low-interest rate that is tax-deductible because the lending institution will be able to make their money back from the property. This should only be done if you are absolutely sure you can repay the debt, as your home is at risk to be seized if you don’t pay.
Try Out Credit Unions
If you have trouble getting a traditional loan from a big bank it’s always a good idea to apply through a credit union. Credit unions are nonprofit organizations that are owned by the bank members. Typically they will take other qualities of your credit into account, not just your credit score when assessing your risk of default. Different credit unions may have various requirements for loans so it pays to check around.
This is one way of getting a loan you may not have heard of before. This type of lending is done online through various peer-to-peer platforms. Individuals who have money to lend can set their own interest rate and choose the specific person they want to lend their money too. This offers a person to person borrowing relationship that tends to be much cheaper than financial institutions and provides less strict standards for lending. The Lending Club is the biggest platform right now.
Keeping track of your credit score and financial management skills is imperative to get the lending you need for life’s events. It’s always advisable to learn money management techniques so you can turn that bad credit score into an excellent one. Take note of the bad financial practices you’ve done in the past and come up with a way to avoid them with this next loan.