Have you ever wondered how to get a loan with bad credit?
Though it may seem impossible, it doesn’t change the fact that loans are sometimes necessary.
Further, while challenging, there is hope.
Here we have some tips on how to get a personal loan with bad credit.
How to Get a Loan With Bad Credit
1. Credit Score
In order to qualify for a loan, you need to obtain your credit score.
A credit score is a three-digit code which is based on your credit history.
Lenders refer to it when you apply for credit or a loan.
You can get your credit score through your credit card issuer or your bank for a minimal fee.
You are also entitled to a free copy of your credit report from the major credit reporting agencies every year.
2. What is a Bad Credit Score?
Understanding what qualifies as a bad credit score is essential in obtaining a loan.
The best score you can achieve is 850.
However, this can be hard to achieve, especially when you are at a young age trying to get your first loan.
Lenders usually approve a loan when you have a credit score of at least 620.
However, keep in mind that your credit score is not the only factor at play.
Lenders also look at your credit history, your current debt, and your current income.
Housing loans require a credit score of 580 for FHA housing loans and a score of 620 for private loans
. Personal loans with lower credit scores usually come with high interest.
Meanwhile, a good credit standing usually gets better interest rates and a higher loan amount approval.
3. Sustain a Steady Income
Lenders look at your ability to pay your current debts in a timely manner.
These include debts like rent, credit card, utilities, and others.
These lenders will also consider your employment.
You need to have been employed for at least two years with a steady income as one of the qualifications.
This will indicate to them if you have the ability to realistically repay your debts.
4. Diminish or Eradicate Your Debt
Reducing your debts is always a good practice.
Debts arising from credit cards and student loans can impact your credit score.
Settling at least the minimum amount of your student loan or credit card has a positive effect on your credit score.
Aiming to fully pay these monthly will eliminate your debt totally.
Organize your debt payments to determine which one needs priority, then focus on your other debts.
5. Pay More Interest on Mortgage
Lenders can extend you a sub-prime mortgage if you’ve previously experienced bad credit or a low credit rating.
Sub-prime mortgages have a higher interest rate to make up for the higher loan risk.
In contrast, the higher your credit rating, the lower the interest they will offer you on the mortgage.
Recommended Loans to Pay Off Student Loans
1. Credit Unions
Joining credit unions can be a good start when considering taking a loan with bad credit.
Credit unions are similar to banks, but the owners are its members and not shareholders like a corporate bank.
These credit unions are non-profit groups, which share their incomes with their members through lower fees.
A credit union can look beyond your poor credit rating when applying for a loan.
Instead, they rely on your pledge to pay, along with your personality.
With this in mind, look for a credit union based on your character, like the Navy Federal Credit Union for military veterans.
2. Family or Friends
Another unconventional option is to turn to your family or your friends as the answer to how to get a loan with bad credit.
The closest and easiest people you can ask for a personal loan are the people who know you best.
However, being unable to commit to your obligations can poison relationships.
This can be far worse than a poor credit rating.
Unlike credit institutions, broken relationships between family or friends can get personal.
Make sure to treat these people professionally, document everything, and faithfully pay your debt.
3. Home Equity Line of Credit
An inexpensive and do-it-yourself way of obtaining a personal loan is using your home equity credit line.
Through this strategy, you can avail of tax-deductible, low-interest credit line without looking at your poor credit rating.
However, keep in mind that using your home equity puts your property at risk, should you fail to settle your debt.
Consider this strategy if you have a steady income and the discipline to manage your finances.
4. Peer-To-Peer Lending
Peer-to-peer’s rising popularity can be a viable solution for your personal loan concerns.
It is a fairly new platform everyone can use — from lenders to borrowers.
You can post an online loan listing to peer-to-peer sites.
Indicate the loan amount you wish to ask for and for what purpose.
Though your credit rating is still a consideration, peer-to-peer lenders are much more lenient than traditional lending institutions.
5. Secured Loans
Another good option for obtaining a loan is through a secured loan facility.
This is where you can get a personal loan that becomes coupled with your assets.
The lender will ask for any asset you own to be used as collateral once you default on payments.
Paying faithfully can also repair your credit rating, so make sure to settle in a timely manner.
Still confused about how to get a loan with bad credit? Watch this video from Finance Management:
Obtaining a loan with a bad credit can really be a hard task to accomplish.
This is especially true when you’re trying to pay off your student loan.
Still, good debt management can improve your credit score and in turn, get noticed by your creditors.
If you’re trying to pay off your student loan, make sure to practice good payment habits.
Do you have other tips on how to get a loan with bad credit? Leave your thoughts in the comments below!
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