If you have bad credit, and you need a loan, it might be a bit difficult but not impossible. According to Credit.com, 30% of Americans have bad credit. Having bad credit or no credit can limit your choices. Today let’s look at what options do you have and how to get a loan with bad credit.
Here’s the unfortunate thing about life. Life happens, and no matter your financial circumstances, it continues to happen. There are times that you might need to get a loan to cover financial obligations and situations. All is not lost though. You always have options, and there are ways to get a loan with bad credit.
- Step 1: Check your current credit score
- Step 2: Figure out your Debt to Income Ratio
- Step 3: Check out credit unions
- Step 4: Consider getting a secured loan
- Step 5: Complete your approval process
- Other ways to get a loan
- Absolutely Last Resort
- Final thoughts
Step 1: Check your current credit score
Your credit score plays a very big role in how much you can get, and what your interest rate would be. So the very first step that you need to take is to figure out exactly what your credit score is.
Thing is, your credit score fluctuates over time, so because of this, it’s important that you get your most recent credit report. By knowing and understanding what your current credit score is, you can get a pretty good idea if you qualify for certain loans from certain lenders.
There are loads of services out there that offer free credit reports, but I personally recommend using Credit Karma to get your latest credit score. Definitely your first step to getting a loan if you have bad credit.
Step 2: Figure out your Debt to Income Ratio
Some lenders also take into account what your debt to income ratio is. Simply put, this is how much your monthly income goes to your existing debts. By knowing what this ratio is, It will help the lender determine if they are willing to issue you a lone.
Figuring out your debt to income ratio is pretty simple. Simply take your total monthly debt obligations (such as credit card payments and car payments) and divide that by your gross monthly income (before taxes).
Lenders typically prefer income to debt ratio off 35 to 40% or lower. This is just a typical preference, but is not the rule. Every lender is different, so when you go lender shopping, take this number into consideration.
Step 3: Check out credit unions
Credit unions are a fantastic option for people looking for a loan oh, that have little to no credit. In all honesty, the credit union should most likely be your first option.
This is because credit unions are much more flexible when it comes to loan requirements. Unlike larger Banks, they also cap the interest rates, making loans from them much more affordable.
Credit unions are also not-for-profit! This means that, unlike larger Banks, they don’t prioritize profits over taking bigger risks. Credit Unions also take and applicants entire Financial history into consideration. A bad credit score is not a deal-breaker as such.
Step 4: Consider getting a secured loan
If getting a loan from a credit union fails, then definitely consider getting a secured loan instead. Individuals with bad or no credit are considered a bigger risk, so in turn, lender’s are more willing to lend it to them if there is collateral.
Collateral basically means that you are willing to put up an asset that you own, just in case you default on the loan. Assets such as a paid off car, a house, or anything really, can be put up against the loan.
The thing is though, if you take out a secured loan, you are putting your asset at risk if you are unable to pay your loan. Simply put, if you put your car up as collateral, and fail to pay your loan, they will take your car away, and sell it!
So remember, don’t take getting a secured loan for granted. If you’re absolutely certain that you can pay back the loan come out without losing your asset oh, then this is a good option to take.
Step 5: Complete your approval process
Sure enough, this might seem like a no-brainer, but it’s an important step to take nevertheless.
Once you have decided on a lender and type off loan, go ahead and provide all your information promptly and accurately to the lender. It’s one thing to seem like a risky borrower to the lender, but it’s another to not take the application process seriously.
This is also the time to get your finances and budgeting in order! There is nothing worse than getting yourself into debt without a plan. Simply put, you don’t want to take out a loan, and failed to repay it. Trust me, it only makes your financial situation much worse.
So again, going through the approval process might seem trivial but without a game plan, you might end up worse off!
Other ways to get a loan
The five steps listed above are good way to get started, but aren’t you on the options. There are a few more things that you can also take into consideration, that will also help you in securing a loan.
Get a co-signer
This is something that I definitely do not recommend anyone doing, but it is an option nevertheless if your situation is dire.
The reason I don’t typically recommend getting a cosigner is because the person that co-signs you loan it’s also one hundred percent responsible for paying it off. That means if for some reason you fail to pay this loan, the lender can go after your co-signer as well.
So remember, if you are thinking about getting a cosigner to help you secure a loan, make sure they understand that they are also liable to pay it off if you are unable to.
Get a home equity loan
If you currently have a home and have equity in it, then you might consider getting a home equity loan. Once you get a home equity loan, it is a loan with a fixed interest rate and can be repaid up to 30 years, depending on your loan agreement.
Yes, your credit score will be considered by the lender, but having equity in your home is a bigger deciding factor.
Here’s the caveat though! Just like getting a secured loan, a home equity loan also puts your house up as collateral. If you fail to repay this loan, you might end up losing your home. This is something that you definitely need to take into serious consideration.
So before you take out a home equity loan, make sure you research and compare your options, and read all the fine print.
Search for online lenders
This one is actually a very decent option! It’s not only the big Banks and Credit Unions that are able to provide personal loans!
Personal loan lenders like SoFi, Payoff, and Lendingtree are various options that you can use to get a personal loan. These lenders are able to provide loans to borrowers with credit scores even as low as 550!
Typical Banks typically have much stricter regulations and requirements. They also don’t have any wiggle room. Online lenders on the other hand are much more flexible as they only have to follow rules set by themselves! So as long as you have the income to support the loan, there’s a pretty good chance that you can get a loan with these online lenders.
Peer to peer lending companies have grown more popular over the years. The basic premise is that they operate like a typical lender, except that the funds you receive come from an individual and not a bank.
A peer-to-peer lender such as Lendingclub would have hundreds and thousands of individual investors that fund these loans. Depending on how much risk an individual lender is willing to take, you might be able to secure a loan with a decent interest rate even though you have bad credit. Definitely a worthy option.
Boost your credit score
Last but not least, you could always try slightly improving your current credit score.
If you need to get a loan relatively quickly, they are still some steps you can take to improve your credit score, so as to better qualify for a loan. The thing is, the lower your credit score, the easier it is to up it a few points. Getting the score from 550 to 580 it’s much easier than getting a score from 700 to 740.
The biggest and most influential factor to your credit score is your payment history. The best thing you can do for your credit score is to start making all your payments on time from now onwards. Missing a payment has the most devastating effect on your score.
Improving your credit score it’s not something you can do very quickly, so consider this a longer-term goal. Besides, even if we use one of the options of getting a loan listed above, you can always refinance your loan at a later date when you have a better credit score. This means you will get a much better interest rate and better loan terms.
Ask family and friends
This option is not the most comfortable what preferable option, but when you are in a financial pickle, sometimes you don’t have too many options.
You can always ask your family and friends for family for financial help. If you go this route, then it’s absolutely important that the terms are all put in writing. You don’t want to make the mistake of assuming a loan was and gift, and in turn, ruining the relationship.
So, you can always sincerely go to your closest family and friends, and depending how close you are, you could explain your financial situation to them and hope they are willing to give you financial assistance.
But remember though, family and friends are not the bank. They are not obligated to give you financial loans, but only out of the kindness of their hearts.
Absolutely Last Resort
When you’re in a financial emergency, and you urgently need some cash, it’s very tempting to get these types of loans. The types of loans that I’m about to list are you an absolute Last Resort.
These products can definitely help an immediate situation, but if not used responsibly, they can be absolutely financially devastating. Remember only use these options as an absolute Last Resort! Seriously!
I do not recommend anyone get these loans! Most of the lenders that service these options use predatory methods for people in serious financial emergencies, but it’s important that I list every single option out there.
a payday loan is a loan that is given to you by putting up your future paycheck. These types of loans typically only amounts to a paycheck or two, but carry extremely high interest rates. Interest rates for these types of loans can range all the way up to 500%!
Avoid using these types off loans at any cost, and instead ask from family and friends. Depending on your employer, you could also ask for a paycheck in advance instead. I definitely do not recommend anyone getting these types of loans.
Car title loans
Similar to how secured loans work, car title loans are away for borrowers with very bad credit to get a loan. Basically, they put your car up as collateral, and funding is typically done very quickly.
With these types of loans, if you fail to pay your obligation, they might take your car away from you and sell it! Just like payday loans, I also do not recommend anyone to take these kinds of loans.
If you have bad credit or no credit, you might unfortunately be preyed on from unethical lenders.
Think about all the credit cards and loan mail that come in unsolicited. Bad lenders might see this as an opportunity to take advantage of and give unfair terms. So stay vigilant.
Another thing to remember is that a loan is not a get out of jail free card. This is not free money. It’s a loan, borrowed money. So make sure you set yourself a budget, manage the money responsibly, and take financial care of yourself!
Lastly, this is an opportunity to improve your credit score. Your score is directly affected by your payment history, so the more you pay off this loan on time, the better your score improves!
Good luck out there!
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