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How to get a loan with bad credit

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How to get a loan with bad credit

FICO classifies credit scores from 300-850, and a consumer who has a score of 350 to 579 is considered to have poor credit. With poor credit, most lenders view you as a high risk, and thus you will only obtain a loan with considerably high interests. Most lenders are not lenient, and you will not qualify for a loan unless you have a good co-signer.

The good news is that some lenders are willing to overlook your poor credit score and offer you a loan. However, remember that you should not expect low interests or favorable loan terms with a damaged credit score.

How to Get a Loan with Bad Credit Score

Consumers with an excellent credit score ranging from 700 and above will get loans with the lowest rates and have fantastic deals. Thus, if you have a credit score of under 579, lenders will want to punish you with bad deals.

Ideally, if you want to obtain a loan (non-emergency loans), it is intrinsic to improve your credit score before approaching a potential lender. Some of the primary ways to improve your credit score include:

  • Reduce your credit utilization-the simplest way to achieve that is to offset your balances in full every month. Another practical method is ensuring that you ensure that your outstanding balances are 30% or less of the total credit limit.
  • Ensure you don’t miss payments-if you have outstanding loans, ensure you don’t miss paying by more than 29 days.
  • Don’t apply for new credits if you have bad credit.

However, if you need an emergency loan to offset medical bills or pay other emergency expenses, you will not have sufficient time to build your credit score. In such instances, you can approach a lender to prove your creditworthiness to them. Some of the vital things that can verify your creditworthiness despite a poor credit history include:

  • Good tax returns- if you have not been a tax defaulter for at least two years, the lender can trust that you will pay off your debts.
  • Job history-your monthly income and good job history can prove your creditworthiness.
  • Your current assets
  • Bank statements

Where can you get a Loan with a Bad Credit Score?Credit Unions

Credit unions have lenient rules in comparison to other established financial institutions when giving out loans. Some credit unions will overlook your bad credit score when giving out loans. Although most credit unions attract a high-interest rate of approximately 18%, this is standard for all consumers despite their credit scores.

However, you must register with the credit union to ensure you are a member. Most of these financial institutions will ask you to pay a small membership. These are the best options for people with bad credit as they offer a community-oriented approach and personalized financial services.

Obtain a Co-Signer

A co-signer is a person who applies for a loan with you and legally agrees to pay off the loan if you default payment. A co-signer can be your friend or family who has a good credit score and a regular income.

A co-signer comes in handy if you are struggling to get approved for a loan due to bad credit score or you have unpaid debts. Having a good co-signer will help you improve your creditworthiness, and lenders will most likely approve your loan and offer favorable deals.

Home Equity Loans

If you have good equity in your home, you can efficiently apply for home equity loans. In this scenario, your home is used as collateral for the loan. These loans can be obtained despite having bad credit scores since they are secured loans.

However, to qualify for a home equity loan, you must meet the following conditions:

  • It would be best if you had a credit score of 620
  • Your history of bill payment should be positive
  • Stable employment and a good income history
  • Should have 15%-20% equity in the home

Lend from Family and Friends

Another method to obtain a loan is to borrow from friends and family. Your close associations will not review your bad credit history and will most likely offer interest-free loans. However, it is essential to ensure you are disciplined in repaying the loan; not paying back the loan can ruin your relationship.

Key Takeaway

There are many options for people with a bad credit score, such as credit unions, home equity loans, online lenders, and borrowing from friends and family.

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