Personal loans are an excellent way to get funds to meet up financial emergencies and other obligations like mortgages and medical situations. However, not everyone finds it easy to obtain these loans; most notably those with bad credit history.
Lenders are skeptical about giving out bad credit loans because personal loans are usually unsecured, which means they aren’t tied to any collateral security, which makes it difficult for the lender to recoup the money if the borrower fails to repay the loan.
Clients with bad credit records are deemed riskier, as there is little or no proof that they can repay the loan, so they are mostly rejected.
Nonetheless, some financial institutions and lenders provide loans for bad credit borrowers. Every applicant is considered based on their profile, and the term of the loan differs individually. Borrowers with a bad credit history will be charged higher interest than those whose credit score is high.
How to Get Bad Credit Personal Loans
The first to do before getting a loan is to know your credit score. You need to know beforehand, the part of the divide you stand. Since your credit score is a significant determinant of your loan success, then it makes sense to know it if you don’t already. There are many ways you can check your FICO score; you can either request it from the FICO website or check it for free on FreeCreditReport.com.
If the loan isn’t for an emergency, then you should work on improving your credit history before applying. You will find several articles out there to show you how to build a bad credit score. Improving your credit history will save you money on interest and help you get better terms.
If the loan is, however, an emergency, and you are faced with rejections, then the options listed below are your best bet for getting bad credit personal loans not payday loans approved.
Join a Credit Union
Credit unions provide their members with loan facilities and are a good option if you have a bad credit history. Unlike traditional financial institutions, they don’t base their decision on just your credit score. They look at several factors, including where you work, wages, and others.
These unions, however, only give out loans to its members so you will have to become a member to access the loans. You can lookup credit unionsaround your area on mycreditunion.gov. Join one that’s affiliated with your employer or the community where you reside. Credit unions personal loans have an incredible 18 percent interest rate ceiling.
Get Secured Loans
The primary reason why lenders pay so much attention to your credit details is that personal loans are unsecured (not tied to any asset the lender could sell if you fail to pay up).
But, what if you get a secured personal loan instead? Getting a secured loan will require that you pledge collateral of equal or higher value to the lender; it could be a second charge on your house or a lien on your car.
Because of this added security, the lender will overlook your credit history to approve the loan. You will also get better interest rates than with unsecured bad credit loans. This loan type is, however, only advisable for huge sums. You shouldn’t use your house or car as collateral for a loan of $8,000.
Get a Cosigner
A consigned loan requires that a third party co-signs the loan agreement with you. Since your credit score isn’t efficient to get you the loan, you can back it up with that of someone else (friend or family) who agrees to repay the loan, if you default on your repayments.
The cosigner needs to have a high credit score and substantial asset so that their positive history will help offset yours. There are several lenders out there that offer co-signed loans.
P2P lending as it is popularly known involves getting loans on the online platform from individuals or groups instead of bank and financial institutions. The borrowing requirements for these loans are usually more relaxed, and the interest rate lower. Even though peer to peer lenders consider your credit history, lending requirements aren’t unified, so you will still find several investors willing to provide Loans for bad credit borrowers.
The repayment periods for P2P loans are usually 3 to 5 years long, while the interest rate is within 6% to 36%. You may be required to make a down-payment of 1 to 6 percent of the original loan amount.
Home Equity Loan
Home equity loans or home equity line of credit offer you the opportunity to apply for a loan using your home as collateral. If you have equity on your home, then you can get a loan notwithstanding your credit score. This loan type offers a secure and reliable source of fund for your needs. However, it is essential to know that your property may be at risk of been taken over if you fail to repay the loan.
The interest rates for home equity loans are smaller and tax-deductible.
Borrow from Family or Friends
One possibility we often forget when searching for a loan is the people around us (our family and friends). Getting a personal loan from those around you wouldn’t involve your credit score, as they aren’t likely to put you through any complicated qualifying process.
However, it is vital that you should have a written agreement specifying the repayment period, rate, and other terms. You should also ensure to keep to the terms of the loan, to avoid anything that may hurt the relationship.
There you have it. The best ways you can get a loan with a bad credit history. While you can get bad credit personal loans in any of the above-listed places, a more long-term solution will be to improve your credit score.
If you get a loan interview from any lending institution, ensure you go prepared with all the necessary documents that can help you get an approval.