Bad credit means that a person has high a credit risk and low credit score. The chances of people getting personal loans with bad credit are a little low. This is because one of the main factors on the basis of which a loan is granted is your credit score. Personal loans do not have a condition of only being used for certain purposes like mortgages or car loans, etc. You can use them for purposes like paying medical expenses or credit card bills etc. Thus, lenders are reluctant to lend money to the applicants who have a bad credit score to avoid scamming.
Before the application of loan, check your credit score and try to analyze your application the way the lenders will do. The credit score is between 300 and 850 with the higher number being better.
What is a Bad Credit Personal Loan:
Each lender has their own criteria for declaring what credit score qualifies as good and which as bad. However generally, the credit score between 700 and 850 is considered excellent, the one between 680 and 699 as good, 620 to 679 score is considered average and 580 to 619 as low. According to a major credit bureau, Experian, a credit score of 570 or below is very poor.
There can be many reasons for a bad score. Some of which are loss of job, some financial crises which caused bad economy, or the mismanagement of credit. Mostly, the score remains in your history for seven years. However, you can write a goodwill letter to the creditors asking them to remove a late payment record from your history. This will improve your credit points.
Applying for personal loans with bad credit score poses a risk to the lenders especially in case of unsecured loans in which no collateral secures the loan. Collateral is the personal property which gets seized by the lenders if you fail to pay your loan back in time. However, in secured loans-which are secured by collateral- even the bad credit applicants have a chance of receiving the loan.
Effects of a Bad Credit Score:
You can still get personal loans with bad credit score also. But there is a chance that the terms and conditions for you are much tougher than the ones offered to the people with good score. For example, for some lenders, the annual percentage rate could be much higher, incurring more interest. Interest rates for Lanco Federal Credit Union if your score is over 750, the interest rates start at 8.99% APR but if your score is below 620, it rises up to 17.99%. In addition to higher interest rates, the lenders might ask you to pay a fee or deposit.
Finding the Best Personal Loan for Bad Credit:
For applicants with a bad credit score, the recommended method is to first build up the score and then apply for money. However, in case of urgent need, you can apply for a loan while working on improving your credit score. Following are some of the ways to do that:
Apply to Your Own Bank First:
If you want to apply for personal loans with bad credit score, the first place to ask for help would be the bank in which you have a checking or savings account. Because that bank will have a previous relationship with you and will trust you with the loan even with poor credit score.
Find a Cosigner:
A cosigner is a person who is willing to take the loan and thus the interest with you jointly. It is convenient because the lenders will have someone to recover the money from in case of any default. Also, if the cosigner has a good credit score, it can have a good impact on yours too. Credit unions typically base interest rate upon the primary applicant. But other financial solutions may base it upon the cosigner’s financial status, his credit score, and payments history.
If you cannot get an unsecured loan, then there’s always an option of applying for the secured one. You can offer your car, or property as collateral. In this way, the lender will find you a reliable borrower and will be more comfortable in giving you a loan. In secured loans, you can also get lower interest rates.