How to Get a Loan with Bad Credit
Getting a personal loan is sometimes the only way to solve some financial emergencies. Lenders will often run your credit history to determine if they will approve your loan application or not. Most conventional lenders will turn down your application if your credit score is low. The assumption is that if you failed to pay your debts before, you may fail to repay new loans on time. However, you can get a loan with bad credit if you know the right lenders to contact. Here are some tips to help you get a loan with a low credit score.
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1. Check your Credit Score
Get your credit history from at least one bureau before approaching any lender for a loan. You need to know your current score and determine if it is accurate. Sometimes, lenders submit inaccurate repayment reports to the bureaus. Determine if your previous repayments are accurate on the report. Correct any mistakes and ensure that the corrections are reflected before a new lender runs your report. Consider different ways of improving your score where possible such as repaying some of the pending debts. You have higher chances of getting a quick loan if your debt to income ratio is below 30%.
2. Start with your Bank
You should not overlook your bank when it comes to personal loans. Many people start with online lenders assuming that their banks will not consider their requests. Your bank has all the records of your income and repayments. Sometimes, banks lend to borrowers with bad credit if they have a stable source of income. If you have been working hard to improve your score, your bank may consider your request. The secret is to apply for a short-term loan and ensure that you honour your repayments. Give accurate information about your income and agree to a check-off where possible to avoid missing payments.
However, one of the issues with bank loans is that they are often not that friendly for people with little or no credit history, or a history that has been tarnished by bad payments, defaults, and circumstances like bankruptcy. So, if that is your situation, you’ll either have to deal with rejection or bad interest rates. Unless you’re sure you can’t find a better option elsewhere with a better interest rate, you shouldn’t go for a bank loan if you’re in a precarious credit situation.
3. Explore Alternative Sources of Funds
If your bank does not agree to your request, start exploring alternative lenders. Do not limit your options to institutions. Your friends or family members can lend you the cash you need to handle an emergency. Peer to peer lending is a great alternative to banks, which allows you to borrow from individuals instead of institutions. The individuals benefit from higher interest on their savings while borrowers enjoy the low lending rates. Another alternative is to borrow from a credit union. Check the credit unions in your area and compare their lending rates. You are likely to get better rates, even with bad credit, from a credit union – and better customer service.
4. Work with Direct Lenders
You can easily access a quick loan with bad credit online if you have a stable and verifiable source of income. Online lenders run your credit history but will approve your loan request with proof that you can repay in time. In most cases, the lenders offer payday loans that fall due on your next payday. You must be careful when applying for a personal loan online. Most of the search results you will get are from marketing companies and not direct lenders. The marketing companies or brokers match your personal details with potential lenders. Check for a disclaimer at the bottom of the website to determine if you are working with a direct lender.
5. Budget for the Repayments
A low credit score means that you missed some repayments in the past. The same may happen in the future, even if you have a stable source of income. Realise that getting a loan with bad credit comes at a high cost. Lenders charge high rates for bad credit loans because of the risks involved. Account for the high charges in your monthly budget to avoid missing payments. Your credit score will worsen if you miss any payments. Check your current expenses and income when comparing different rates from lenders.
Bad credit does not disqualify you from accessing personal loans. Some institutions consider applications from borrowers with a low credit score. You must do your homework and identify such institutions in your area. The easiest way to identify the lenders is to search online. However, you must ensure that you contact a direct lender when applying for the loan online. Borrow responsibly and ensure that all the terms and conditions are clear before you agree to the loan.
Author: Zoe Price
A very nice article. A good read indeed! Thank you for sharing your thoughts over here. It is extremely useful and I will definitely going to save them for future reference.