Do you have a low credit score but need financial assistance fast? Though most banks may not approve your application, you can still obtain a loan from other sources. Bad credit loans are also referred to as personal loans and come in handy during financial difficulties. You can use such a loan to repair your vehicle, pay for hospital bills, or even consolidate your debt.
Just like any other personal loan, you pay back a bad credit loan in monthly installments. You need to compare the different sources of such loans so that you can choose one that offers flexible eligibility requirements and affordable interest rates. Before we discuss some of the options available, here is a brief explanation of a credit score.
What is considered a bad credit score?
These are numbers that are used to gauge the ability of a borrower to repay a loan. Credit scores often start from 300- 850. Banks often assume that if you have a high credit score, the chances of you repaying the loan are higher than a person with a poor credit score. Anything that is below 650 is considered a poor credit rating. Such borrowers are taken as high risk and are often subjected to high-interest rates if they choose a loan from a conventional bank.
Every lender, however, has its unique definition of bad and good credit scores. This means that you have to explore more if your rating is not very high so that you work with a reasonable lender. Bad credit scores tend to have a direct impact on borrowing. Those with excellent scores tend to receive loans with very low-interest rates from big financial institutions such as banks.
How can you get a loan when your credit score is wanting?
If you don’t have an emergency, you should start working on boosting your credit score. This makes it easy for you to afford the loan in the future. For you to boost your credit score, start by making relevant changes such as making all your payments on time. You can also work on your credit cards by ensuring that you minimize their balances and avoid going beyond normal credit limits. Avoid applying for new credit as you work on boosting your score since this can have a negative impact.
When you have an emergency, however, you may not have enough time to boost your credit score. In this case, one of your options would be sitting down with a loan officer so that you can convince them of your creditworthiness. Before you attend such an interview, ensure that you organize all the relevant documents such as tax returns, information regarding your job history, and bank statements.
Where to get a bad credit loan
Some of the options you can consider are discussed as follows:
- Credit unions
You can get a bad credit loan from a community-based credit union. Such associations may look beyond your credit score and judge your ability to pay back based on your character. One that is affiliated with your job can also consider you for a bad credit loan. Most of the credit unions charge an interest rate of about 18% to all borrowers. If you got a similar loan from a traditional bank, you would incur interest of up to 36%. This is a clear indicator that credit unions can save you a lot of money at the end of your payment period.
Most of the credit unions are also on the lookout for borrowers. You only need to afford the terms that are in line with your credit history for you to qualify for a bad credit score from them. If you are part of the armed forces, you should consider particular credit unions that are designed for such members for you to enjoy certain benefits.
- Borrow from your friends or family
When your credit score is not the best, one of the best options you should not disregard is borrowing from a loved one. Though it can put your relationship with them at risk, it is easier for you to get approved for the loan compared to other options. A friend may not subject you to a stressful qualifying process since they already know your character. They may also charge you a considerable interest rate compared to borrowing from a bank.
Regardless of having a relationship with them, you should treat this loan application just like the same way you would work with a stranger. It should be formalized with documentation to avoid any disputes in the future. Ensure that you sign a written contract that outlines how you should pay the loan, as well as the interest rates attached to it.
- Direct lender
Technology has made it possible for people to borrow bad credit loans from online direct lenders. By choosing a lender such as Cashfloat, you would enjoy fast loan application, and approval since the lender determines if you qualify for the loan or not in minutes. You should expect to receive your funds within a few hours after application. Though direct lenders do not focus so much on your credit score, factors such as your employment history may be considered.
- Peer to peer lending
You can also get a bad credit loan from a group of individuals instead of an institution. If you prefer this option, look for a peer to peer website and give details regarding the amount you intend to apply for and the purpose of the loan. Investors on such sites go through loan listings from time to time and select the borrowers they would like to fund. Borrowers who choose this option find the lending terms more lenient than borrowing from individual financial institutions. You can also enjoy low-interest rates from this option.
Though every borrower is encouraged to work on their credit scores, you still have options to borrow from when your rating is low. Ensure you understand the risks involved from borrowing from each option before you sign any documents.