5 Tips to Get Personal Loans for People with Bad Credit
If you have bad credit, finding a personal loan can be tricky but it is totally doable. Personal loans are a good option if you are looking to fund a big expense, cover a special purchase, consolidate debt, or get rid of high interest rate balances. Personal loans offer interest rates that are significantly lower than credit cards, potentially saving you thousands of dollars in interest. While bad credit will not stop you from getting a personal loan, you will need to be strategic about it. Here are 5 tips on how to secure a personal loan if you have bad credit.
- Find a transparent lender you can trust: This is a critical first step in pursuing that personal loan with bad credit, as there are many predatory lenders and scams out there that will make you all kinds of promises while keeping you trapped in a cycle of debt. Basically, you want to work with a lender who will be upfront about rates and fees, flexible on terms, and willing to look at your entire situation, not only your credit score. A credit union is always a good place to start, as these are nonprofit organizations who work to pass along earnings in the form of lower fees, strong customer service, and a certain degree of flexibility.
- Arm yourself with information: Don’t wait for the bank to surprise you—be sure you know where you stand long before you have that conversation with the loan officer. The first step to take here is to go to one of the free credit score sites online and get a copy of your credit report and score (typically a score below 580 is considered bad credit). Then take the time to review that credit report to determine if there are any mistakes. If you find an error, take the time to rectify it. Although time consuming, even a little error can make a big difference in your credit score.
- Do your research ahead of time: Once you know your credit situation, then take the time to find out what’s out there. You can research online to find out what the financial market is like and what you can expect in general from different lenders. It’s recommended that you compare loan offers from several institutions to ensure that you are getting the lowest interest rate possible on your loan. And if you end up going with a bank or institution you are unfamiliar with, do your due diligence there too (like checking with the Better Business Bureau) to make sure you are not walking into a scam or bad situation.
- Leverage your assets: For instance, if you own a home and it’s worth more than you own on it, a home equity line of credit makes a great option. With this type of loan, equity in the property gives you access to a low-interest, tax-deductible line of credit, without any consideration of your credit score. Just take care to assess your current situation to make sure you will be able to make the loan payments, as failure to do so can end up putting your property in jeopardy.
- Look for viable alternatives: If you simply cannot find a personal loan with a reasonable interest rate based on your credit alone, then you may have to get creative. One option is to get a friend or family member who knows your situation and trusts your ability to repay the debt to cosign the loan. There are also unique loan structures out there, like peer to peer (P2P) lending, an online platform that allows you to borrow directly from an individual rather than an institution, who may be willing to overlook your current credit situation.
Although getting a personal loan with bad credit isn’t always easy, you have more options than you think. With a little ingenuity, you can secure that loan you need and move toward rebuilding your credit.