How To Qualify For A Personal Loan With Bad Credit

A personal loan is borrowed funds that can be used for almost anything. Whether it be an emergency expense or a dream vacation, a personal loan can get you funds when you need them the most.

They are usually structured as installment loans, meaning you must repay the amount borrowed with interest over a set amount of time. A bad credit personal loan is essentially the same thing but geared towards consumers with low to mid-range credit score with limited borrowing options. While the best solution is to build emergency savings to remedy unexpected costly situations, it’s not always the most feasible. Bad credit personal loan options can serve many individuals by providing financial relief in times when it's needed the most.
There are 2 basic types of personal loans:

  • Secured - Money is borrowed and you are required to secure the amount borrowed with one of your assets. Assets then become collateral for the loan if you are unable to pay it as agreed.
  • Unsecured - Money is borrowed and not secured with any assets. If you default on the loan, the lender can’t automatically take your property.

If for any reason, such as poor credit, that you do not qualify for an unsecured personal loan, you may be approved for a secured loan backed by the value of one of your assets. An asset is any item of economic value, such as a vehicle. Be mindful to always consider the consequences of losing the asset before agreeing to a loan of these terms. A secured loan can be easier to obtain since there is less risk to the lender. Secured loans also tend to have lower interest rates and higher borrowing limits.

Is Your Credit Good Enough to Qualify For a Personal Loan?

Lenders use your credit score as an indicator of how likely you are to repay a loan. A variety of things like payment history, credit usage, credit history, and credit mix can affect your score. Credit scores range from 300 to 850 and the higher the score the more likely you are to comply with the loan terms. Before applying for any loan it is important to check your credit score. If you are searching for a personal loan with mid to low range credit, you may notice you have limited choices with higher interest rates. Traditional lenders like big banks may deny your application for funds. This is because you are considered a higher risk to the lender and you may need to look at personal loans that cater to individuals with bad credit.

Where Can I Find a Bad Credit Personal Loan

If you have found yourself in need of a loan and are unable to obtain one from traditional lenders, rest assured there is an entire industry catering to individuals with bad credit. National and community banks have the strictest standards when it comes to lending funds. Credit unions can be slightly less rigid in their loan qualification process and often have special programs for consumers with low credit scores. Also, federal credit unions have more favorable loan terms as they are restricted to charging a maximum APR of 18%. For these reasons, you’ll want to check your local credit union to see what options are available to you.

In addition to credit unions, there are copious amounts of online lenders that provide loans to individuals with less than perfect credit. Many of them boast fast funding and flexible payment plans for a wide range of loan amounts. Because there are so many options out there, it is crucial you do your research when considering online lenders as an option.

What To Look For

Above all, it is imperative you do your homework and shop around before deciding on a loan. There are several things you’ll want to take into account before making such a big decision. Luckily, there are a number of companies online making the process of comparing top lenders quick and easy for everyone. The following items should be considered when shopping for a loan:

  • APR - Annual Percentage Rate is the annual rate charged for borrowing money including interest and fees. The lower the APR you have, the better.
  • Loan Repayment Period - This is the length of time that you have to fully repay the loan. The longer the repayment period, the more interest you will be paying and more costly the loan.
  • Monthly Payments - The amount of money you are responsible for paying back to the lender each month. This is typically determined by the amount of money borrowed, interest rate and loan term.
  • Loan Min and Max - Lenders normally have a minimum and maximum amount of money you can borrow. How much you can borrow depends on several factors, including your credit score.

No matter how you hear about a lender, it’s imperative to do your own research. Ensure you are choosing a reputable lender by checking online reviews and learning as much as possible about the company you are dealing with. You should also check the Better Business Bureau and the Consumer Complaint Database to find out more about the history of the lender.

Is a Personal Loan Right For Me?

Before borrowing money it’s worthwhile to ask yourself these questions - Does it make sense for me? Will it help me save money in the long term? The answers to these questions depend on your specific situation and the loan terms and amount. If you have found yourself in a situation where you are paying high interest on credit card debt and can pay it off with a loan that will help you save money in interest, a personal loan can be a good tool of you. You also may benefit from a personal loan if you are looking to consolidate multiple payments into one simple payment. There are even scenarios where obtaining a personal loan can help to improve your credit.

If you're not faced with an emergency, you'll likely want to build better credit to get more favorable loan terms. You can begin improving your credit by paying all bills on time, paying down your debts, checking your credit report for errors and reducing the balance on credit cards to under 30% of the allowed credit limit. These tips could help to raise your score in just a few months.

Alternative Ways To Find Money

If you don’t qualify for a personal loan or feel it is not the right avenue for you, there are other options too secure funds quickly. Check out these 5 Emergency Solutions For When You Need Cash Now.

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