Bad credit

How to Compare Personal Loans for Bad Credit

If you have bad credit, you may find it difficult to qualify for a personal loan without a co-signer, as many lenders only approve borrowers with good to excellent credit. And even if you qualify, you will most likely pay high interest and fees.

Fortunately, some lenders offer personal loans designed for borrowers with bad credit. Before choosing a lender, compare the eligibility requirements, borrowing costs, loan terms, and type of features offered by multiple lenders.

Check your other qualifications

When you apply for a personal loan, your credit isn’t the only factor a lender considers. Lenders generally take into account your income and debt-to-income ratio (DTI) as well.

Your DTI compares your monthly gross income to your monthly debt. For example, if your monthly gross income is $5,000 and your monthly debt is $2,500, your DTI is 50%.

Minimum income and DTI requirements vary by lender. You can find these out by visiting a lender’s website or contacting their customer support team.

Look for lenders who consider factors other than credit score

Most lenders will look at your credit and income when you apply for a personal loan, but some take non-traditional factors into account. For instance, Reached takes into account your education and experience. If you find a lender that takes into account more than just your credit score, you may find it easier to get approved.

Determine loan costs

When comparing personal loans for bad credit, the most important factor to consider is the cost of borrowing. Your borrowing costs can be broken down into two categories: interest rate and fees. Interest is what you pay the lender each month.

Lenders sometimes charge an origination fee for processing your application, which is often deducted from your loan amount. Also, if you don’t repay your loan on time or don’t have enough funds in your account to cover your monthly payment, you may have to pay late or returned check fees.

When reviewing your options, pay close attention to the annual percentage rate (APR) range advertised by a lender – this takes into account the interest and fees charged by a lender. Some lenders will allow you to prequalify for a personal loan to view estimated rates and terms without affecting your credit score.

To estimate your borrowing costs, consider using a personal loan calculator. By entering your loan term, loan amount, and estimated interest rate, you can get an idea of ​​what your monthly payment might look like and estimate how much interest you’ll pay.

Assess any additional features the lender has

Some lenders offer additional benefits to borrowers, such as the ability to delay a monthly payment without paying interest, free FICO scores, and free credit reports. When comparing your options, it might be a good idea to consider the value of these additional features.

Consider the term of the loan and the effect on monthly payments

Loan terms vary by lender. Generally speaking, choosing a shorter loan term can help you save money on interest, but your monthly payments will be higher. On the other hand, choosing a longer loan term may lower your monthly payment, but you may pay more interest over the term of the loan.

For example, let’s say you released a $10,000 personal loan with a term of three years at 8%. In this case, your estimated monthly payment would be $313 and you would pay $1,281 in interest over the life of the loan.

In contrast, if you took out a loan for the same amount with a five-year term at 8%, your estimated monthly payment would be lower — $175. However, you would pay $2,624 in interest over the life of the loan, a difference of $1,343.

See if you can get a secured loan

Most personal loans are unsecured. That means it doesn’t require collateral, like a car title or bank account, that a lender can take if you don’t repay the loan. But unsecured personal loans usually come with strict credit requirements; therefore, it can be difficult to qualify for bad credit.

That said, some lenders offer secured personal loan options. Secured Personal Loans require collateral, but they may have less stringent credit requirements and offer lower rates to consumers with bad credit.

At the end of the line

Even if you have bad credit, you can get a personal loan. Compare rates, terms and fees from multiple lenders to get the best deal for your unique situation. When shopping, pay close attention to key factors, such as eligibility requirements, loan terms, and APR range.