Having bad credit or no credit makes it tough, but not impossible to get a personal loan. Take the first step to applying for a loan by knowing your exact credit score.
Lenders dig deep into your credit history to check if you qualify for a loan. They know your credit score and so should you. There are plenty of ways to check your credit score online for free, or you can check with your bank if they provide free credit scores.
Borrowers with a credit score above 750, pay low interest on their personal loan. Those with a subprime score, pay 3 times more. For those with below 550 credit score, lenders don’t offer a loan at all.
If your credit score falls below 550, don’t panic. Below are 5 ways you can apply for a personal loan.
1) Apply for a loan with a co-signer
One of the most popular options among lenders is to lend you a loan if you have a co-signer for the loan. A co-signer could be a friend or a family member who has a good credit score and someone you can trust with your finances.
Co-signing a loan with someone who has good credit history helps with your chances of getting a better loan deal than you could achieve on your own. When you co-sign a loan with someone who has a good credit history, this automatically reduces your interest rate. So, consider this option only if you can keep up with the payments & agreements.
2) Opt for a secured loan
When seeking a secured loan, you can pledge fixed assets as collateral for the loan. Fixed assets include cars, stocks, savings, boats, etc. When you are willing to risk something you own, the lender is then willing to look past your credit score, as he can take possession of the asset to make up for the losses.
The returns on less-significant possessions will reap lower benefits, but also yield lower risks. Thus, when opting for a secured loan, choose your collateral wisely.
3) Join a credit union
Credit unions are nonprofit organizations that are much like banks, but function on a smaller scale. Since they operate on a smaller scale, they are willing to offer lower fees with lower mortgage rates and interest rates to people with bad credit.
Unlike banks that offer a loan gauging solely your credit score, credit unions consider other factors like education, employment, etc. However, to apply for a loan with a credit union, you need to be a member.
4) Explore peer-to-peer lending
If you want to borrow money without using a traditional bank, peer-to-peer lending allows you to borrow money directly from an individual or group of individuals. This new debt financing option enables borrowers to directly connect with investors through an online marketplace.
Lending standards on this platform are generally lenient, interest rates are low, and loans are more readily available for people with bad credit.
5) Find online lenders
Online lenders are new online banks that offer competitive loans for people with bad credit. While some online lenders have loan-qualification terms and requirements like traditional banks, others may offer you more favorable conditions and less restraining standards for borrowing.
However, the loans offered by the latter type of online lenders have higher interest rates and often do not require a good credit score to apply. These lenders consider other requirements like the area of residence, employment, education, etc. Don’t let high-interest rates pull you back from considering online lenders as an option – just make sure you understand the loan you’re applying for.
Bottom Line
Rebuilding a bad credit score takes time. If you need a loan right away, finding a credit union or an online lender could be your best option.
Just make sure you carefully compare interest rates and terms of each loan option. If you can’t find an affordable lender, wait and work towards building your credit score by paying your debts on time.
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