Bad Credit Loans Complete Guide [Understanding How to Approach Bad Credit Loans]
Bad/low credit score? Does that mean you can’t borrow anymore? Not at all, and there’s still a chance.
Today, we’ll walk you through all you need to know about bad credit loans and how you can apply for them.
Understanding the World of Bad Credit Loans
As much as possible, you want to have a good credit score. It increases the likelihood of you getting approved for a loan, and re-assures the creditor of your ability to pay.
Unfortunately, the same can’t be said for individuals with a bad credit score and low credit history. Creditors are more hesitant with giving them a loan, for various reasons.
And when this is the case, many people with a poor credit history are often left scratching their heads where on earth they can get a loan and how.
How Bad Credit Affects Your Application
When you search for the definition of bad credit on the internet, hundreds of definitions pop up.
But one thing’s for sure, the definition of bad credit in all those are the same and essentially share the same thought.
Bad credit can be best defined as having an undesirable credit score. It occurs for different reasons, such as when you make late payments or don’t pay at all!
And because of this, your potential creditors are scared you might not pay them back for the loan they’ll give you.
You might have a hard time applying for a loan in the future, especially if your lender does a hard credit inquiry on you. Even a soft credit check may prove to be a challenge at times.
So you’ll need to boost your credit score and clean up your payment history.
What Is Bad Credit? What Score Should I Aim For?
Having bad credit always goes hand in hand with having a bad credit score. It’s always best to discuss the two next to each other, for you to see the bigger picture.
Like we’ve said earlier, having bad credit has a lot to do with your credit score rating. It’s low, and it’s bad!
In general, credit scores range somewhere between 300 to 850. The higher your credit rating is, the better your score is! And the lower it is, well, you know what it means, it’s bad!
Here’s a guide of poor, fair, good, and excellent credit scores:
- Poor – Any score below 650
- Fair – Between 651 to 699
- Good – Between 700 to 759
- Excellent – Between 760 to 850
As much as possible, you’d want to have a fair credit score. Anything lower than that, and your creditor might be 50/50 with you.
Is Having a Bad Credit Score Bad?
We hate to break it to you.
You don’t want to be in a position where you have a poor credit score. It affects a lot of things when it comes to borrowing a loan from creditors.
Not only that, but you’ll need to put a lot of effort to get yourself out of a bad credit score. And allow us to tell you that the steps may be simple, but it does take some time.
Sometimes, creditors will steer clear from you if they think you’ll be a bad payer. Why would they give you the loan amount, if they’re unsure of your ability to pay!
- In some cases, there will be creditors who are willing to give you a loan, but they’ll also impose steep interest rates on you.
- In other cases, a collateral is needed to decrease the lender’s risk should you be unable to pay.
But don’t worry, bad credit loan rates aren’t always unfavorable to you.
Even People With Bad Credit Can Get Loans
Everyone can apply for a loan these days, and this includes even people with a bad credit history. So if you fall under the category of having bad credit, you can still borrow money!
Loans for bad credit are available today, especially for people who are still in the process of improving their credit history.
In a way, you can consider loans for bad credit as a means to help people having a low credit score.
However, do note the dynamics with applying for a loan as a person having good credit versus someone who doesn’t is very different.
People with bad credit have a further burden of securing their loan with sort of collateral, interest rates, and more!
Is It Easy to Get Loans for Bad Credit?
Applying for a loan, even with bad credit, can be easy and simple. Well, that’s as if you know where you stand and which institution you should approach.
Things will be a lot easier for you if you do some research about your case, and who to turn to.
We’ve listed down all the different tips to help you get loans for bad credit, which will surely come in handy when the time comes.
Tip 1: Know Your Credit Score
The only way for you to know which loan applies to you is if you know where you stand. What credit score do you have, and should you apply for a bad credit loan?
Understanding your score gives you a better understanding of the different options you can get.
You can know where you currently stand with the help of the three major credit bureaus! Not only will you know your credit rating, but you also get a chance to improve it later on.
Tip 2: Determine Your Ability to Pay
If you already have an unfavorable credit rating, then your creditor will doubt whether you can pay the loan. You should be asking yourself whether you can pay the loan or not.
Better yet, PLAN the amount you want to loan that matches your current financial ability to pay.
It’s expected that when you apply for a loan you have to be sure you can pay for it. Or else, you’re doomed!
So before you go ahead and apply for bad credit loans, you need to have supporting documents that prove you can pay.
Tip 3: Pre-Qualify for Your Loan
Even before you go through the long and laborious process of applying for a loan, check if you prequalify.
Many lenders today let you check if you prequalify for their loans. This is helpful, considering how you save a lot of time.
Plus, it saves you heartache later on.
Tip 4: Check Out Secured Personal Loans
Between secured and unsecured personal loan, go for the former.
It’s a lot easier to borrow secured personal loans, as compared to unsecured ones. Especially if you’re someone with bad credit.
Sure you have an unfavorable credit score, but at least you have some assets you can use to secure your loan. This way, your creditors will be less hesitant to lend you money.
But take note: If you don’t pay your loan, say goodbye to that asset you used as collateral
Tip 5: Have a Cosigner
If you want to increase your likelihood of getting approved for a loan, have a cosigner!
A co-signer is someone who is held equally liable as you, in case you aren’t able to pay. In a sense, consider your co-signer a form of security for your creditors.
In case you can’t pay, they can ask your co-signer to pay the obligation for you. But of course, don’t make it reach that point!
Now, you can’t choose just about anybody as a co-signer. You need to choose someone with a good credit rating at least.
What Should You Consider in a Bad-Credit Loan Provider?
Because you have bad credit, you’ll probably think you don’t have a lot of feasible options out there. After all, there’s a saying that goes “beggars can’t be choosy.”
Well, we beg to differ!
Getting a loan with bad credit on your side isn’t impossible. You’d be surprised to discover there’s a good number of financial institutions that specialize in these types of cases.
When it comes to looking for a credit union or a bad credit lender, you won’t have a problem.
Instead, what you should worry about is finding the best credit unions that can suit your needs. It’s the same with how you want to find the best credit union to get your loan, even if you had good credit.
It’s not a one size fits all thing, and the trick to improving your luck in finding what’s best for you.
We’ve listed down some of the different factors you should consider when shortlisting your choices.
There are different bad credit lenders out there. It’s a matter of choosing who you want to approach. Now, a bad credit loan company can take in the form of the following
- Credit unions
- Mortgage lenders
- Online lenders
- Personal loan lenders
Choose which type of lender best suits you to help narrow down your search.
First, always look at the requirements credit unions provide. Now, do note the requirements for a person with bad credit may be more extensive.
Regardless of what the requirements are, make sure you have them. Whether it’s checking you have the minimum credit score, proof of bank account, or minimum annual income, you need to be ready.
You don’t want to be applying for a loan you don’t even have the requirements for.
Once you qualify for the loan, we’re sure you’ll be excited to get your loan proceeds. For sure, you’ll be patiently anticipating its arrival inside your savings account.
Before you get all excited, make sure you know what the monthly payment terms are. Your contract always states how much of your monthly payment you should make, and up to when.
Never, and we repeat, NEVER delay your payment. Make sure you always have enough funds when payday comes.
Interest Rates and Late Payment Fees
A very crucial thing you need to know from your potential lender is how much interest rate they will impose on you.
Interest rates are a way for your lenders to earn from you and assume the risk involved with lending you some money.
In general, bad credit borrowers risk facing a relatively big interest rate. Lenders treat this as security IN CASE their borrowers don’t pay them back.
Just because you have low credit, doesn’t mean you have to subject yourself to such an interest rate.
There are still some credit union loans, mortgage lenders, and other forms of lenders, who provide a relatively good rate.
You just have to be diligent and thorough with your search, and the rest should be good.
As much as possible, you don’t want to end up defaulting on your loan payment. It may trigger late payment fees, which often come with a steep interest rate.
Consider the interest rates unfavorable to you sometimes, as a way to deter you from being delayed.
We can’t emphasize enough how crucial it is for you to approach only a legitimate credit union or online lender.
Many people fall victim to bad credit loan scams, to get quick cash to sort them out.
Different Types of Bad Credit Loans Worth Considering
Now that you have a better idea of how to get a small loan with bad credit, it’s time we talk about the different types of bad credit loan you can choose from.
Like we said, getting a loan with bad credit isn’t a one size fits all kind of thing. That being the case, expect there are different ways for you to get a loan with bad credit.
Getting a personal loan from a bank is the most traditional way of borrowing money. It’s tried, tested, and reliable!
You can always ask your bank for what loans they have. If you’re lucky, and if you have a good relationship with your bank, they’ll most probably offer you a loan favorable to you.
However, the only downside with getting a personal loan from the banks is the paperwork. Even before you get the loan amount, you’ll have to process a multitude of things.
There are so many policies and paperwork involved!
A cash advance is a form of credit card debt. You ask for a certain loan amount, and it is taken from the balance you have on your credit card.
Consider it an easy and fast way to get cash, best reserved for the most urgent cases only.
Home Equity Loans
Home equity loans are a form of secured personal loans. You’ll offer your home as collateral, and you get your loan amount in no time.
This is favorable for people who need to borrow money but have a poor credit score. If you need fast cash for debt consolidation, credit card refinancing, home management, this is a good deal. Simply offer their house as collateral, and they’re all set!
Not to mention, you might even score favorable interest rates. Better than other loans even!
The only downside to this is that you’ll risk losing your home. So if we were you, we wouldn’t default on your payments.
Applying for secured personal loans is usually a lot easier, considering how you always have to offer collateral to your lender.
In general, you can use your house, car, among other things, as collateral. For as long as it has value and it is yours, your lender should accept it as collateral.
We prefer secured loans for people with a poor credit report because it is more favorable. You can reasonably expect a better interest rate, personal loan amount, scheduling, and more!
However, one thing to be mindful of about secured loans, is you risk losing your collateral. That’s if you are unable to pay for the loan amount in the long run.
A Secured loan may be the fastest way for you to get a loan with bad credit, but the consequence is also big. If you need huge cash for debt consolidation, this may be a good deal.
Unsecured personal loans are essentially the opposite of a secured personal loan. You don’t have to offer any collateral to qualify for the loan.
It may sound favorable for those who don’t have assets to offer, but soon you realize that the deal may not be as favorable as you initially thought.
You see, your lender will impose an interest rate based on your credit score. Now, just imagine how much interest rate that’s offered to you, especially if you have a really bad credit score.
But if your credit score isn’t that bad, applying for unsecured loans won’t be that bad either!
Examples of an unsecured loan include your student loans, credit card debt, personal loans, among others.
Payday loans are notorious for being one the fastest ways to get a loan. In case you run into an emergency, you can apply for payday loans and get the loan amount within the day.
It sounds too good to be true because it actually isn’t.
Sure, you’ll get the loan amount in cash. But in return, you have to pay a HIGH interest rate. More importantly, you need to be ready to pay for the entire loan amount in probably a month.
Payday loans sure are helpful when you need quick cash, but it still helps to be aware of the risks and high rates a payday loan has.
You can also check out payday alternative loans, which are just as fast as payday loans.
If you’re still on your way to getting a degree, a student loan can help you pay for your books, tuition, boarding, and more!
It’s relatively easy to apply for if you’re trying to cover some educational expenses. The only downside is you need a cosigner with great credit scores to help you.
Companies That Offer Bad Credit Loans
There are several companies that offer personal loans for bad credit. You can check out what they offer, and see which credit union or online lender suits you.
We’ve listed some of the best lenders we can find, to help you make an informed decision.
- Amount: up to $35,000
- APR: 9.95%-35.99%
- Credit Score: 600 above
- Loan Delivery: at least within a business day
- Loan Terms: 2 to 5 years
The beauty of online lenders is they’re accessible anytime. Whenever you need funds fast, you can always turn to online lenders for help.
Avant has been one of the best go-to online lenders since its inception, for people with average to poor credit ratings.
If you fall somewhere between the 600 and up minimum credit score requirement, you should be able to obtain a loan from them. Although it’s a pretty steep minimum credit score, you get a ton of benefits in return.
Avant offers very flexible repayment terms and interest rates, unlike the usual lenders.
- Amount: up to $40,000
- APR: 8.05%-35.89%
- Credit Score: 580 above
- Loan Delivery: at least four business days
- Loan Terms: 3 to 5 years
LendingClub is a pretty established online lender, offering its personal loans services to many people. No wonder they’ve garnered the attention of many!
The best part about LendingClub is they offer their loans for people even with credit scores as low as 580. Do note that the company doesn’t usually advertise this, so consider this a secret you learned from us.
You can get loan amounts worth up to $40,000, and pay it within a flexible monthly payments option. Awesome right?
However, the only downside with LendingClub is its APR is pretty steep. On top of that, you may be charged an origination fee.
- Amount: up t0 $25,000
- APR: 9.99%-35.99%
- Credit Score: 585 above
- Loan Delivery: at least within a business day
- Loan Terms: 2 to 5 years
- Origination Fee: up to 6%
If you’re looking for a lender that provides excellent and flexible payment, LendingPoint has been one of the best.
They provide a great degree of flexibility when it comes to loan repayment, making sure the schedule is feasible for the lender.
Believe it or not, this is one of the best ways a lender can do to help you pay your loan amounts. Whether you plan to make monthly payments, bi-weekly, no problem!
Do note that LendingPoint offers their loan to people with a minimum of 580. Safe to say, people with average to below-average credit scores can turn to LendingPoint for a loan.
- Amount: up t0 $20,000
- APR: 8%–35.99%
- Loan Delivery: at least two to three days
- Loan Terms: 2 to 5 years
- Origination Fee: up to 10%
If you’re looking for an affordable loan, you need to check out OneMain Financial. They offer both secured and unsecured loans, you pretty much have a multitude of options.
The beauty with OneMain Financial is you can get a loan that’s as low as $1,500. It’s perfect for those who don’t require a big amount and fast.
Not to mention, their impressive selection of loan repayment terms will help you out in complying with your obligation.
However, we did notice that the processing of loans with OneMain Financial takes quite some time. Other online lenders would usually have a fast processing time, and even give you the loan amount within a day.
For OneMain Financial, you’ll need at least 2 to 3 days. But after that, you’re all set to getting your much-needed money!
- Amount: up t0 $50,000
- APR: 6.95%–35.99%
- Loan Delivery: at least two days
- Loan Terms: 3 to 5 years
- Origination Fee: up to 8%
Finally, another awesome lender to check out is Upstart. They offer unsecured loans, instead of a secured loan, which may be favorable for some.
The beauty with Upstart is you can get a loan for as low as $1000! If you need quick and fast cash, Upstart is worth checking out.
And even for such a small amount, they can offer you a flexible repayment scheme! Now doesn’t that sound enticing?
Even with poor credit scores, Upstart will always consider you for their personal loans.
Instead of looking at how much credit you have, they also look at other factors such as your job, education, and more.
Just watch out for the one-time origination fee you have to pay together with the loan amounts, which can get so steep sometimes. The maximum origination fee they can impose on you is 8%, which isn’t necessarily the best deal out there.
Advantages & Disadvantages of Getting a Bad Credit Personal Loan: A Final Look
In general, applying for a bad credit loan shouldn’t give you a headache. If you’re on the right track, everything should go without a problem.
Nevertheless, that doesn’t mean there aren’t any red flags when it comes to applying for a bad credit personal loan. There are several things you still need to watch out for, especially if you want everything to go smoothly.
Now, before we conclude this article, we’ve summed all the advantages and disadvantages of applying for a bad credit personal loan.
It should help you make an informed decision, and make your life a lot easier!
Advantages of Bad Credit Loans
So far, we’ve talked about how bad credit personal loans can help you with a lot of things. This is especially true if you’re in dire need of funds, during those unforeseeable events.
Besides that, here are the other advantages when you choose to apply for bad credit personal loans.
Availability of Lenders
An important thing we discussed today is the number of available lenders for you to choose from. There are loans for bad credit, don’t worry! There’s always a solution to your problem.
With a variety of lenders to choose from, we don’t doubt you’ll find one that can help you out!
Fast and Easy Application
Contrary to what many people think, bad credit personal loans aren’t that hard to apply for. Not to mention, you’ve got a lot of lenders to choose from that can suit your needs.
Today, applying for a personal loan, regardless of your credit history, is pretty straightforward. Most lenders do their transactions online, processing hardly takes a week.
Sometimes, it can be as fast as hours and as long as a business day.
Flexible Repayment Schedule
It’s natural to assume that you’ll be under a stricter repayment schedule when both your credit report and history are bad. After all, lenders are just trying to do their job.
Nevertheless, that doesn’t mean your credit union won’t give you a flexible repayment schedule. As much as possible, they want to be on your side.
This means they’ll come up with a repayment plan to make sure you’ll be able to pay for the loan funds.
You can repay your loan in as fast as months, or even as long as five years! At the end of the day, it’s up to you and your lender to discuss these things.
Improve Your Credit Score
People with a poor credit report always wish there’s a chance of redemption for them. Well, there always is a chance, especially when you have a bad credit loan.
As you continue making timely payments on your loan amounts, expect your credit scores to go up and improve!
And hopefully, by the time you pay off all the loan amount, you’ve already reached the desirable credit scores.
You’ve hit two birds in one stone! Awesome!
Disadvantages of Bad Credit Loans
Of course, there are downsides when you have a poor credit score and you apply for a loan. The terms aren’t always favorable for you, as should be expected at times.
You have to understand that your lender is trying to get on with its business, and protecting the integrity of the company in the long run.
That being the case, the means these lenders protect themselves isn’t always favorable to you.
Imposition of Higher Interest Rates
If you compare the interest rate of someone who has a good credit report to someone who doesn’t, you’ll notice a big difference.
It appears that borrowers with poor credit are subjected to higher interest rates, which isn’t always favorable for them.
But for a lender? Well, consider the high interest rate as an incentive for them to lend you the loan amount. If it weren’t for the interest rates, you won’t be able to get a loan from them.
High interest rates are your enemy, as it is your friend.
Extra Fees and Penalties
Admit it, you barely read the fine print on your contract. Who does right?
Well, if you’re a cautious borrower, you’d always read the fine print. Sometimes, it is where most lenders insert unconscionable fees and penalties which you’d be surprised to hear later on.
And no matter how much you insist to your lender you didn’t agree to it, all they can say is, “Well, you signed the contract. Didn’t you?” And from there, the rest is history.
Always check for any hidden fees like the following:
- Origination Fee
- Late Fee
Requires a Collateral
If you’re applying for a secured personal loan, you’ll need to offer your asset as collateral. That being the case, you’ll risk losing your asset if you’re unable to pay the loan amounts.
You need to think long and hard about whether losing your house is worth getting a personal loan for. Unless you’re sure you can pay for the loan amounts, we advise against getting a secured personal loan.
More Debts to Pay
If you don’t already have enough funds to pay for your existing debts, don’t apply for another personal loan.
You’ll end up having more debts to pay than assets and accounts receivable. Sure you wouldn’t want that for yourself.
Sure you have money now, but once it’s time to make the payments, you’ll need to be ready!
Even with poor credit scores, you can apply for a bad credit loan. It’s not impossible, nor is it hard as you’d imagine.
Whenever you’re in need of emergency cash, you don’t have to look far and hard for a solution! There are various personal loan lenders who are willing to help you.
We hope you enjoyed this article! We sure gave you a lot of tips and recommendations to help you apply for a bad credit loan!
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