How to get a loan if you have a bad credit score
Bad credit? Do not worry! You can still get a loan if you play your cards right.
Lenders use your credit score, among other parameters, to determine your ability to repay them. The credit score is derived from your credit report which highlights the amount you have borrowed, your payment schedule, and your credit history, among other factors. This information helps lenders decide whether offering a loan is risky or not.
While most people think that you can’t get a loan with a bad credit rating, that’s not entirely true. There are bad credit payday loans that you can apply for. While credit rating is one factor you cannot ignore, some lenders choose to consider other factors such as your income, credit history, collateral, and debt.
How does bad credit affect borrowing?
The credit score is between 300 and 850. There is no specific number for a bad credit score. If your score is below 650, you fall into this category. This means that your loan options are limited and may only qualify for high interest rate loans.
If your credit reports show late payments, a lot of debt, and other bad things, you have bad credit. A low credit score informs the lender that you may not pay off the loan in the future.
The decision whether or not to consider a borrower’s credit rating varies from lender to lender. Some only go with borrowers with a good credit rating. Others consider borrowers to have bad credit, while others are generous enough to lend to each borrower.
However, people with a credit score above 700 attract loans with the best terms and the lowest interest rates. Those with a score below 650 are burdened with high interest rates and high upfront fees if they are approved for a loan. Consumers with a score between 650 and 700 must weigh the cost of the loan against the benefits of the loan.
In simpler terms, the higher the credit score, the better the loan offer. So how can you get a loan with a bad credit score? Check below.
How to get a loan if you have a bad credit score
- Improve Your Credit Score
Yes it’s possible. The first thing you should think about is improving your credit score, especially if it’s not an emergency. A good credit rating is a guarantee that you will qualify for the loan.
First, clear all your bills quickly, and second, make sure your credit card balances are within 30% of the limit. Finally, avoid new credit at all costs. All three factors could increase your credit score by 100 points in three to six months.
- Request an in-person interview
If your loan application is urgent and your lender has refused your request, it’s time to request an in-person interview. You will take the opportunity to convince the credit union or bank that you are solvent.
Lenders value stability. Carry documents proving that you have a stable life or job. For example, show that you have worked for a specific company for several years and have lived in the same house. Some of the documents you can bring on board include tax return forms, a list of assets, employment history, bank statements, and a list of unsecured debts.
Note that some of these documents are not required when applying for a loan, but they do strengthen your bargaining power. Also, be prepared to answer questions about your credit history.
It is easier to qualify for a secured personal loan with a lower than average credit score. Some lenders will agree to give you the money if you back up your loan application with an asset such as a car or a house.
A co-signer would also come in hand; they will agree to repay the loan if you fail. A co-signer with a high credit score will help you get a loan at a lower interest rate. Talk to a relative, friend, coworker, or someone willing to help.
Your lender will update your loan payment information on your credit report and the credit report of your co-signers. If you delay payments or fail to reimburse them, both of you will suffer. However, if you repay on time, your credit score will increase, making it easier for you to qualify for loans in the future.
- Think about prequalification
Some lenders allow you to check whether your loan application will be accepted or rather prequalified for a loan before doing a thorough credit check.
However, for the actual loan application, your lender will perform a thorough credit check. Be prepared and be sure to impress the lender with your planned payment strategy.
Do a background check with your lender before applying for a loan. Consumers with bad credit attract direct mail campaigns that advertise loans at low interest rates.
The low rates of 6 to 8 percent are, in a real sense, only an introductory rate and increase over time. They offer the loan at a low interest rate as long as you pay it back within a limited time. If you fail, the interest rate increases to a range of 20-30%. You will repay more than what you would have paid by working with a reputable lender.
The reality of getting a loan with a low credit score is that your overall payments will be higher than those with a high credit score. However, you can get a good deal if you search for a lenient and legitimate lender.
Make sure that you are aware of the cost that you will incur in obtaining the loan. Read and understand the loan agreement and how your interest will be structured and determined. If you are not careful, you may miss out on additional loans that will cost you a significant amount of money while paying off the loan.
Finally, knowing your credit score gives you a rough idea of what kind of deal you might get, including the interest rate and the upfront cost. If your credit union or bank denies you a loan, try peer-to-peer borrowing. There is always a way!