It is said that the limitations we face are the ones placed by ourselves. This is also the case when it comes to seeking finances. You may have already locked yourself out of getting a loan because you have a bad credit score.
It’s still possible to get a loan even with bad credit. Keep reading for how to get a loan with bad credit in 2019.
The Relationship Between Credit Score and Loans
Most lenders check the credit score of loan applicants and this is the main factor in their decision-making on whether they shall award the loan and the interest rate they will charge. Your debt to income ratio will be taken into consideration. Credit unions and online lenders are known to offer lower interest rates compared to banks.
Before you apply for a loan, it is best that you know your credit score at that moment in time. There are five categories of credit score, according to the credit scoring company FICO.
Very good (740-799)
How to Get a Loan with Bad Credit
Depending on the speed at which you need the funds, the assets you have that can be used as collateral and the need for the funds, you can get funds from different lenders. Some lenders provide process bad credit loans quickly.
The following are some of the options which you may consider if you would like to get a loan with bad credit:
- Credit Unions
Credit unions offer loans to high-risk borrowers who are mostly turned away by banks. They consider a loan applicant’s financial history and the revenue credit score do not influence their decisions. Flexibility and interest capping at 18% make credit unions a great choice.
To join a credit union, your application will have to be convincing. Some companies have credit unions and if you are employed, starting off with the company’s credit union would be a good place to start to get a loan and even repair your credit score.
- Secured Loan
A secured loan is one in which you use an asset you possess to be the collateral when you take out a loan. Therefore, this gives you the chance to qualify for the loan since although you have a bad credit score, the lender has security that in case you fail to pay up, they can seize your property. Banks and credit unions offer secured loans.
- Home Equity Loan
If you have a bad credit score but your home has equity, consider using that equity to work to your advantage. The main characteristics of this type of loan are a fixed repayment term and a fixed interest rate. It is a long-term option which gives you the chance to borrow money for up to 30 years.
- Online Lenders
Having a bad credit score locks you out from being granted bank loans. However, you can still get a loan from online lenders. These types of lenders are not bound by the many regulations, which apply to mainstream financial lenders. They, therefore, make a good choice of lenders of bad credit loans.
Therefore, they have more flexibility and place more importance on your ability to pay back instead of looking at your credit score. The advantage of shopping for loans online is that you will be able to do comparisons and check reviews.
- Get a Co-Signer
You may have minimal chances of securing a loan if you have a bad credit score. However, you can stand a better chance if you have an individual with a good credit score to be the co-signer. The lender will offer you better loan terms since they will be considering the credit score of your co-signer while making the decisions.
Ensure that you will pay the loan so as to avoid risking the finances of your co-signer and ruining your relationship.
- Peer-To-Peer Loans
There are some lending platforms which match borrowers to the individuals who are willing to lend money. You can be awarded a loan easily and thereafter make an agreement on the repayment plan. Online transactions are pegged on trust and you ought to do proper research.
- Personal Installment Loan
At times, urgent situations arise and this brings about the need to get quick cash. You may not have sufficient time to build good credit. You stand a better chance to get funds from personal installment lenders because credit scores are just one among the many factors that they consider.
These funds can be also used in debt consolidation.
Loan Application Requirements
To apply for a personal loan, you ought to meet some requirements. You must be of a minimum legal age of 18 years old will need to provide identification details. Your employment history may also be a factor and in some cases, you will be required to provide your recent pay slips.
Additional bio-data such as your address will also be requested for.
Make smart choices when applying for bad credit loans. Although offering your assets as collateral makes you qualify for such loans, keep in mind that you may risk losing the property of you fail to pay the lender. Do research on the type of loan that you would like to secure.
Some home equity loans may end up being costly as they have fees. Also, avoid payday loans because these have high-interest rates and also keep you in a vicious cycle of debt. You should also check the credibility of the lender because there has been an increase in scams that take advantage of unsuspecting borrowers.
When searching for a lender, also check their ratings and reviews. The Better Business Bureau is a good place to start. It is also wise to check the terms and conditions so that you know what you shall be agreeing to when you take the loan.
Move from Bad to Good with a Bad Credit Loan
You can make 2019 the year in which you can turn around your financial situation. Having a bad credit score should not necessarily lock you out of getting a good loan. After you apply for the loan, paying it on time improves your credit score significantly.
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