Vault’s Viewpoint on Personal Loans With Bad Credit
- Borrowers with bad credit might still have a shot at getting a personal loan.
- If credit is an issue, consider adding a co-signer or an unsecured personal loan.
- Since borrowers with bad credit often get higher interest rates, shopping around for the best personal loan rates is essential.
How to Get a Loan With Bad Credit
If you need extra cash for an upcoming expense, here’s how to get a personal loan with bad credit.
1. Check Your Credit Score and Report
Some lenders publicly disclose their minimum credit requirement online, and if you don’t meet this criteria, you’re better off looking for a loan elsewhere. For this reason, it’s important to be realistic about where your credit stands today.
If it’s been some time since you last checked in with your credit, see what range your credit score falls in and request your credit report before applying for a loan. You can get a free weekly credit report from each major credit bureau—Equifax, Experian and TransUnion—at AnnualCreditReport.com.
2. Determine if You Need a Co-signer
If your score falls in a gray area based on the lender’s basic eligibility requirements, a co-signer might help you cross the loan approval finish line.
A co-signer isn’t entitled to the loan funds but does assume liability for repaying your loan if you don’t. This individual is usually someone you trust and are close to, like a family member or spouse.
3. Get Pre-Qualified With Multiple Lenders
As an applicant with bad credit, chances are you won’t qualify for the lender’s lowest personal loan rates. To ensure you’re moving forward with the best personal loans for bad credit, shop around with a handful of lenders before making a final decision.
Many lenders offer a pre-qualification tool or form that lets you know the rate you’d receive if you apply for a personal loan. Pre-qualification involves a soft credit check that doesn’t negatively impact your credit, but the lender will perform a hard credit check if you decide to move forward with an application.
4. Review Your Offers
Compare the interest rates, fees, borrowing amounts and loan terms for each pre-qualification offer you received. Calculate what your monthly payment would look like for each loan (if it wasn’t already provided).
With the monthly payment in mind, confirm whether you can realistically manage payment in your budget. If you’d like to move forward with an offer, move on to the next step.
5. Complete the Lender’s Application Process
Getting pre-qualified only shows you what rate you might receive if you apply for the loan. It’s not the actual loan application. Fill out your chosen lender’s personal loan application and submit it.
You might be asked to provide personal identification, like a government-issued ID, and the lender might require proof of income or other documents.
Where to Find the Best Personal Loans for Bad Credit
If you’re interested in applying for a personal loan but don’t have good credit, a credit union or online lender are good places to start your search. These sources sometimes offer personal loans specifically designed to help borrowers with bad credit acquire financing.
- Credit union: A credit union is a nonprofit financial institution that redirects its profits to its members via high deposit rates and low loan rates and fees. As a member, you can access its specialized products, like credit builder loans that help you improve your credit with a small-sized personal loan.
- Online lender: Some online lenders, like fintech companies, make borrowing money more accessible for those with bad credit. These lenders might have flexible credit requirements or even offer loans without a credit check by considering other factors (e.g. your education) to determine your eligibility.
How to Improve Your Odds of Getting Loans With Poor Credit
If you’ve been unsuccessful at getting a loan because of your bad credit, you can try a few different approaches.
Explore Secured Loans
Choosing a secured personal loan can be easier to qualify for than an unsecured loan. The main difference between the two loan types is that secured loans require collateral. This collateral must have value, like funds in a savings account, a car or your home.
In agreeing to a secured loan, you’re giving the lender consent to take or sell your collateral and use the proceeds to pay back the loan. You’re promising something of value upfront if you don’t repay the debt. For this reason, lending you money poses less risk for the lender despite your poor credit.
Add a Co-signer
Not all borrowers have a value-based asset to offer as collateral for a secured personal loan. In this case, consider applying for a personal loan with a co-signer.
Leveraging their good credit helps strengthen your loan application. Also, if approved, having a co-signer might get a better personal loan rate than what you’d get on your own.
Keep in mind that if you fail to make your payments, it could negatively impact your credit and your co-signer’s credit report.
Lower the Loan Amount
It might be difficult to get approved for a $100,000 personal loan with bad credit. As a general rule of thumb, it’s wise not to borrow more money than you actually need. If you have poor credit, consider opting for a smaller loan.
Instead of thousands of dollars, some lenders might be willing to consider lending you a few hundred dollars to cover part of an upcoming expense.
Work on Improving Your Credit
If getting a loan isn’t urgent, consider bringing your credit up before applying for a personal loan. Many factors contribute to your credit track record and score—the biggest one being your repayment history.
For the FICO score, how well (or poorly) you manage your debt payments impacts 35% of your score calculation. Other factors that contribute to how your credit is calculated include:
- Your credit utilization ratio (how much you owe compared to how much credit you have access to)
- The age of your credit accounts
- The mix of credit types on your record
- New credit accounts and inquiries
By raising your credit, you’ll not only unlock greater personal loan options, but you might also qualify for competitive loan rates.
Frequently Asked Questions
What’s the Easiest Loan to Get With Bad Credit?
Secured personal loans are the most accessible loans for bad credit. This loan type requires putting forth collateral, such as a car or your savings account, as a condition for the loan. If you default on the loan, the lender can take possession of your collateral and use its value to repay the debt.
Can I Borrow Money With a 500 Credit Score?
If you have a 500 credit score, you might be able to get a personal loan. However, you’ll likely be offered a higher interest rate. Also, you might be required to meet other borrowing criteria before you’re approved, like a minimum income, to show you can repay the debt.
Can I Get a Loan With Bad Credit?
You might be able to borrow money despite having bad credit. It depends on the type of loan you’re after, the lender’s underwriting requirements and whether your personal situation qualifies. For example, in addition to your past credit data, lenders assess how much you want to borrow, your income, employment and your unpaid debt.
