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Things You Should Know for Getting a Bad Credit Personal Loan
A personal loan can be used for anything that you need – that is if you are eligible for one.
Personal loans can cover anything from hospital bills, a big move, your next home improvement project, to consolidate your debts, and even your dream vacation. A personal loan can help you get your hands on some cash when you badly need it.
There are two types of loans a secured and an unsecured loan. Personal loans are often unsecured which means that your word is the only thing that the lenders are holding on to when it comes to getting paid back. Also, a personal loan’s repayment plan usually is an installment kind of type – which means you are paying a set amount monthly of the principal amount that you borrowed plus interest.
That’s why it’s fairly hard to get a personal loan while having a bad credit. Because it’s an unsecured loan, but if any case that you do, then you’ll be offered the highest interest rate or the not so good terms, in any case, it will be hard to repay.
Are You Qualified for a Personal Loan?
It’s natural for lenders to take a look at your credit score or credit standing when applying for a loan. And you’ll likely have multiples as there are multiple scoring companies in the US alone that scores your credit. It may vary from company to company as they may have different data regarding you and your credit – they might be scoring you through a different model or they may have different information available while getting your score.
But the most common score used among lenders is the FICO score. When using the FICO method, your credit score is scored from 300 to 850. If you have a fair credit score or in the middle, then applying for a personal loan on banks are out of the equation as they are very strict in that regard.
Maxing out your credit card, having a CCJ or a county court judgement, late repayments or not repaying at all – those are the main culprits in pulling your credit score down. But that’s not all, even when you fail to pay your utility bills, your credit score takes a hit.
But having a bad credit score doesn’t mean it’s impossible for you to take out a personal loan. There are many lenders that deal with situations like these. Be informed though that it may be a bit expensive. That only means that you need to conduct a thorough research before even choosing a lender, you don’t want to take out a loan that will put you in even more financial hardship.
Where to Look for a Personal Loan When You Have a Bad Credit
Most places where you can get a personal loan from are the ff:
National Banks are out of the equation when you have a bad credit score because they are strict on their guidelines and standards. When having a credit score of 620 and below, it’s best for you to rule out banks and just approach other lenders. Most lenders offer better rates than banks anyways.
A credit-union is a non-profit organization that are owned by the members. Unions tend to be less strict on their requirements. So despite having a low credit score, credit-unions might consider giving you a loan. Credit-Unions are usually the best options for people who have a bad credit score as they offer favorable interest and terms. But in order to get a loan from them, you’d need to be a member.
You can also get a personal loan within the comforts of your home with online lenders. Most online lenders aren’t strict in their requirements and will just look at your ability to repay the loan you’re going to take. And if you do, you’ll likely be offered loans with high interest rates.
Just be very careful in looking for an online lender as some may be scammers, some may be questionable, and some are just looking to take advantage of people who are in need.
What to Look for in a Good Personal Loan?
Having a bad credit means that lenders will perceive you as a risky borrower. And that will result in them giving you less favorable deals in order for them to compensate with that risk. That is why it’s very important to compare loan terms to avoid being in further debt and to save money as much as possible. Here are a few factors to look for when comparing loans:
APR or Annual Percentage Rate: The APR of a loan will show you how much that loan will cost annually. That includes any fees and interest that comes with the loan. The lower the APR is, the more you’ll save. But since you have a bad credit, you’ll likely be offered higher APR’s
Loan Period – Your loan period will show you how long will you paying the loan. Personal loans are installment type, which means you are paying a certain fixed amount over a set period of time. The longer the term of your loan is, the more expensive you pay for in interest.
Monthly Payments – A monthly payment is your principal amount, and the interest that comes with it.
Maximum and Minimum Loan – When having a bad credit, you are only allowed to take out a reasonable amount of loan. Some terms may cause you to over borrow or under borrow, so weigh your options carefully.
Should you Take Out a Personal Loan?
Now we know that you can, but the more important question would be is, if you should.
Qualifying for a personal loan while having a bad credit can be tedious, and that is to be expected – and necessary. The question you need to answer is, will this loan help me not just at this moment, but in the long run as well? Below are certain situations where a personal loan might help someone with a bad credit.
Do you have an outstanding balance in your high-interest credit card? If yes, then it’s reasonable to take out a personal loan to pay for said balance and avoid it ballooning until it’s hard to control. Not just on your credit cards, but consolidating a loan through a personal loan can save you money.
When an emergency situation arises and you need that quick injection of cash to fix or deal with it. Rather than taking out a payday loan or use your credit card, a personal loan will be less expensive.
In any case, it’s up to you, the borrower to evaluate the situation and see if a personal loan makes sense or not. But if you’re only getting offers with unfavorable rates and terms - then maybe it’s time to rethink your options. You can either:
Look for alternatives – If you’ve tried approaching a bank and denied you, you can try online lenders, or go to credit-unions. There are lenders out there that are willing to help you get the funding that you need.
Improve your credit – As simple as paying your utility bills on time, you are improving your credit score. If you have any ongoing loans, or debts – pay them off as soon as you can. Paying off a loan will significantly improve your credit score. If you have any credit cards, pay at least 3% of the total balance monthly, as that’s what most banks require of you. Make sure that you don’t max your credit card out. Improving your credit score will take time, so be patient. Don’t take new loans for the sake of improving your score, it will lower it instead because of hard inquiries.
By taking your time and researching thoroughly, you can make the most optimal choice for you. Weigh your options carefully and see where you benefit most, not just on the early stages but in the long run.
Frequently Asked Questions
What Is Payday Loan?
If you need cash on the same day, payday loans is the right choice. Payday loans are unsecured loans with convenient and easy payment method. It’s a small cash loan that allows you to get the funds instantly. Repayment options can be tied to your next paycheck or if you wish to pay in advance, that works too.
What is Guarantor Loan?
For those who doesn’t have good credit, applying for a guarantor loan is recommended. Guarantor loans, as the name suggests, requires a guarantor before the loan is approved. The guarantor takes over if in case the borrower fails to meet the repayment terms.
How Fast Can I Have The Money?
Applying for a loan won’t take you hours. As a matter of fact, you can have it done in as fast as 15 minutes. All you need to do is to complete an online form and have it submitted. In just a few minutes, you’ll get the results and the money is automatically deposited to your account.
Do I Need Good Credit?
No. You are eligible to apply regardless of your credit line. Most lenders would prefer borrowers with good credit but it is not a requirement. You can apply for a payday loan and use it to slowly build your credit.
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