A low credit score doesn’t have to be an obstacle to taking a personal loan. Several lenders provide bad credit loans. You just need to widen your search.
However, bad credit loans are accompanied by unfavorable terms and a high-interest rate. But when you don’t have a strong credit history, you have fewer options.
In this blog post, we will explain how to apply for a loan with bad credit. So keep reading to find out your options. But before that, let’s understand “what is bad credit.”
What is Bad Credit?
Your credit score is a way for the lending institution to gauge your creditworthiness. It comprises your loan repayment history and current outstanding loans.
However, several other factors aren’t publicly disclosed by banks. And the lending criteria for each bank has a different interpretation of “bad credit score.”
A bad credit score results from late or default payments, high credit usage or too many credit applications. People with a bad credit score are called subprime borrowers, and they tend to be risky.
Banks want maximum return on their investment, and loans are no exception. Therefore, your financial institution will gauge your creditworthiness before approving your loan request.
How to Improve Your Credit Score
To secure a loan from a bank, you need to improve your credit score. Here is how you can do it.
- Review Your Credit Report
Sometimes the credit bureau makes mistakes. It’s up to you to find these mistakes and send them for corrections. Watch out for repeat transactions and un-updated payment history.
Mostly, the credit bureau doesn’t update your outstanding loans. This shows that your loans are pending.
Credit report errors are very common, so don’t worry. Your credit score will increase once you submit your report for correction.
- Take a Short-term Loan
This might seem like bad advice, but it isn’t. Sometimes, your credit score drops if you delay your monthly payments.
To bring your score back up, you can take small loans and make balloon payments. This will improve your credit history because you cleared your loan in one go.
- Limit Your Loan Requests
More often than not, we forget that too many credit requests can impact our score. It’s best to stay quiet for a few months if your loan request is rejected. Perhaps your bank doesn’t have enough finances to pay you at the moment.
Sending multiple loan requests raises suspicions and drops your credit score.
- Make a Payment Schedule and Pay More
If you have an ongoing loan and your credit score is dropping, you can raise it quickly. Pay more than on your terms, and the bank will reconsider your credit history.
You don’t have to double your payment to boost your credit score. A small 30% increase will go a long way in building your credit history.
How Long Does it Take to Build a Credit Score?
There is no set time limit for building your credit score. It can take as long as two years or as short as a month. Plus, it depends on what’s hurting your credit score and the steps you have taken.
For instance, if your credit score drops because you missed a payment, you can raise it by paying on time. However, if you delay payments on multiple accounts for more than 90 days, it’ll take a long time to regain your score.
How to Get a Loan With Bad Credit
Applying for a loan when you have bad credit is not easy. You’ll have to step up your research and communication game!
Here are a few ways you can get a loan with bad credit.
- Compare Lenders
No two lenders are the same. This is because the loan market is highly competitive. Everyone is trying to provide loans, and they have different criteria.
So if your loan request was turned down, you could try elsewhere. However, don’t make too many loan requests because your credit score will drop.
- Look For Bad Credit Lenders
When your loan request has been turned down everywhere, you can try bad credit lenders. Bad credit lenders aren’t banks, but they are legitimate lending institutions. They have high-interest rates, but there is a cap.
Moreover, bad credit lenders have unfavorable terms, but you can find one that’s not too hard on you. You can get personal loan financing but don’t expect a large sum of money.
Nevertheless, bad credit lenders aren’t too bad when you are in dire need of cash injection.
- Add A Co-Signer
A Co-signers is someone who steps in to help you get a loan with bad credit. So-signers take the responsibility of paying back your loan in case you miss payments. Therefore, banks feel a bit confident in your creditworthiness.
However, it’s not that easy to find a Co-signer. You can expect your family members or friends to be your co-signer, but it’s a huge responsibility.
You might need to convince your co-signer that you can pay the loan.
Should You Get a Loan With Bad Credit?
Bad credit loans are risky, and there is no doubt about it. However, when you don’t have anywhere else to go, bad credit lenders help. If you have a sound financial plan for repayment, you shouldn’t worry.
Moreover, bad credit lenders won’t lend you more than what you can afford. So you’re safe.
Plus, bad credit lenders aren’t authorized to share your information with banks. So that’s a nice bonus!
Getting a loan with bad credit isn’t a walk in the park. You’ll need some convincing power and people to back you. Finding a Co-signer is a good option. But if your options are limited on that, you can turn to bad credit lenders.
They are your best source of financial help if you are in crisis. Plus, paying back isn’t that tough if you have a paycheck on the way.