If you’ve been late paying your bills in the past or have a mountain of debt, your credit score may be lower than you’d like it to be. Bad credit can be a frustrating disadvantage, particularly when getting lenders to trust in your ability to pay them back over time. Show
A personal loan can be a good way to pay for emergency expenses or consolidate debt. While having an inferior credit score will mean paying higher interest rates, obtaining a personal loan with bad credit is still possible by taking some simple steps to improve your score and shopping around with multiple lenders. What does it mean to have bad credit?Almost every American has a credit file compiled by one or more credit bureaus: TransUnion, Equifax and Experian. Your credit files are used to compile a credit score, a number that tries to define how risky you would be as a borrower. Credit scores range from 300 to 850. Generally, anything under 580 is considered “bad.” If you have bad credit, you typically have a short credit history, a history of late payments, lots of debt relative to your income or any combination of those factors. Lightbulb FICO credit scores Here’s a breakdown of FICO credit scores that are used by 90 percent of lenders and creditors to make lending decisions:
How credit score is determinedIf you’re not in a hurry to obtain the money, it can ultimately make more sense to spend time trying to improve your credit score rather than proceed with an extremely high-interest loan. A few areas to focus on if you’re looking to improve your credit picture are:
Ways to get a personal loan with bad creditKnowing what to expect when you apply for a personal loan will help you prepare for the process. If you’re in the market for a personal loan and you have imperfect credit, here are eight steps to keep in mind. 1. Check your credit score and credit reportsBefore you apply for a personal loan, take a close look at your credit report and credit score, says Bruce McClary, spokesman for the National Foundation for Credit Counseling. Federal law entitles you to a free copy of your credit report every 12 months from the major credit-reporting bureaus: Equifax, Experian and TransUnion. Visit AnnualCreditReport.com to request your free credit reports. They won’t display your credit scores, but you can visit each credit reporting agency’s websites to view them for free (with Equifax or Experian) or for a nominal fee (with TransUnion). With your report in hand, you’ll know exactly what your credit score is, and you’ll be able to identify any negative marks on your record. If you find errors or old debt on your report, you can try to correct them before applying for a personal loan. 2. Ensure that you can repay the loanIf you have bad credit, the last thing you want to do is take out a loan you can’t repay. This will only make your credit score worse. As you shop for loans, ensure you know the monthly payments and when they will be due. Use Bankrate’s personal loan calculator to estimate monthly payments and review your budget to make a repayment plan. If you will have trouble paying, consider other options for getting cash. You don’t want to take out a personal loan you can’t afford. 3. Compare bad credit loansWhile a bad credit score will not qualify you for the best rates and terms, don’t assume that only the worst rates and terms will be available. You may get a better deal at your bank or credit union. It can be advantageous if you have a relationship with a community bank or credit union. If the bank knows you and your spending habits, your low credit score can be mitigated by your history of paying on time and keeping a balance in your accounts. Some reputable online lenders offer loans to consumers with poor to average credit scores. Some of Bankrate’s recommended bad-credit personal loan lenders offer rates starting as low as 5.67 percent. 4. Get prequalifiedPrequalification, sometimes used interchangeably with pre-approval, allows you to find out if you will likely qualify for a loan. You can give the lender your information to find out if you are preapproved using a soft credit inquiry. Why does this matter? Typically, a lending institution will do a hard credit check when you apply for a loan. A hard credit check can lower your credit score temporarily. This may be frustrating if you apply for a loan, get a hard credit check and are denied the loan. Then, you must apply for other loans with a possibly lower credit score than when you started. Talk to potential lenders to see if you can get prequalified for a personal loan. Then, you can evaluate several loan options without multiple hard credit inquiries. Some lenders may even allow you to complete this process online in just a few minutes. Consider the interest rates and loan terms offered when comparing your loan options. It’s equally important to assess any fees, like origination fees and prepayment penalties, the lender may charge. In some instances, a loan with a lower interest rate may not be the best deal if the fees the lender charges are on the higher end. 5. Look into secured loansA secured loan is a loan backed by assets such as a home or a car. Because secured loans use collateral to back your loan, they typically have better rates than unsecured loans. If you have collateral to back your loan, this may be your best option with bad credit Consider shopping around with lenders offering secured loans if you decide it’s a suitable option. Keep in mind that secured loans risk losing your asset, so they should only be considered if you can afford to make timely loan payments. 6. Add a co-signer if necessaryA co-signer is someone who agrees to sign on to the loan with you. They are agreeing to pay back the loan if you can’t. If you are having trouble qualifying for a loan, a co-signer can help you qualify if they have a better credit score and credit history. But you want to confirm with the lender that co-signers are permitted as they’re not always allowed. Taking out a loan with a co-signer can make personal relationships go bad if you have trouble paying off the loan. Make sure you both know what you are signing up for if you decide to take out a loan with a co-signer. 7. Gather financial documentsWhen you apply for any loan, the lender will request several financial documents to complete your application. Gather these documents and pieces of information before you start applying for loans, as you may need some or all of them to complete your application:
Your lender can always request additional documents, so be prepared to provide any extra requests quickly. 8. Be prepared for a hard credit checkWhen you are ready to officially apply for a personal loan, know that the lender will likely perform a hard credit check, also called a hard pull. In the short term, a hard pull will lower your credit score. Too many hard credit checks in a short time can make it look like you applying for loans that you can’t afford. Be careful with how many loans you apply for, and be prepared to see your credit score drop temporarily with a loan application. As you make timely payments on your loan, you should be able to get your credit score back up in a few months. Types of bad credit loansSeveral types of loans may be good for people with bad credit. A personal loan is not your only option. Consider these loan options as you shop around:
Bad-credit loan considerationsWhile weighing the various costs and risks associated with a personal loan, there are a few additional things to remember for bad credit loans. A loan costs more with a low credit scoreThe unfortunate reality of applying for a loan with a less-than-ideal credit score is that you will be paying more than someone with a higher credit score. “Banks and lenders typically assess your credit score by tapping providers like FICO or VantageScore. These providers use credit scoring models like loan balances and payment histories to determine your creditworthiness. The lower the score, the harder it is to borrow money,” explains Steve Sexton, CEO of Sexton Advisory Group. “If you have a lower score and do qualify for a loan, you will likely pay a higher interest rate to make up for the default risk.” Predatory lenders prey on people with low credit scoresIndividuals with poor credit scores may also be targets of aggressive direct mail campaigns that market personal loans with low interest rates of around 6 percent or 8 percent. However, these campaigns frequently advertise an introductory or “teaser” rate that will increase after the limited-time offer expires. If you don’t have a plan for a rapid payoff, the rates can skyrocket to the 20 percent to 30 percent range, which is likely much higher than the rate you can qualify for with a reputable lender. Add-on costs may be hidden in the fine printBecause those with bad credit scores are considered a higher risk, be sure you’re clear on exactly what you’ll be paying to get the loan. When applying for a bad-credit loan, read the loan agreement and fully understand how your interest will be charged and structured. “Many loans are advertised with a nominal interest rate, but don’t clarify that it is a monthly interest rate, not an annual one, until the paperwork phase,” says Sexton. In addition, beware of any add-on loan costs. Again, this goes back to reading the agreement closely and fully to ensure there aren’t any fees or add-on services your loan officer may have glossed over. How to improve your credit scoreIf you’re looking to improve your credit score, here are a few steps to get you started:
The bottom lineIt’s possible to get a personal loan even if you have bad credit. However, you must shop around to find the best options. Some lenders target subprime borrowers, but their loan products often cost much more. Secured loans are also an option, but you risk losing your asset if you encounter financial hardship. But you could find that online banks are worth considering. Many reputable options feature flexible qualification criteria and sometimes cater to borrowers with past credit mishaps. Consider getting pre-qualified to determine which lenders could be a good fit. Learn more:
What credit score do I need for a 8000 loan?Most lenders require a credit score of 580 or higher to qualify for an $8,000 personal loan. If you are concerned about qualifying for a personal loan, you can add a cosigner to increase your chance of approval.
What is the monthly payment on a 8000 loan?The monthly payment on an $8,000 loan ranges from $109 to $804, depending on the APR and how long the loan lasts. For example, if you take out an $8,000 loan for one year with an APR of 36%, your monthly payment will be $804.
What is the easiest loan to get with bad credit?Secured, co-signed and joint loans are the easiest to get with bad credit. A secured loan requires collateral like a car or savings account, which the lender can take if you fail to repay.
Can I get a loan with 500 credit score?It's possible to get a personal loan if you have a 500 credit score, but there are caveats to be aware of. First, not all lenders will loan money to borrowers with a credit score of 500.
|