HOW TO GET A PERSONAL LOAN WITH BAD CREDIT?
Personal loans can be very beneficial in the right circumstances. Maybe you have an unexpected medical bill, you need to get your car fixed, or your washing machine broke down. There are instances where personal loans are better than using your credit cards. They have a fixed monthly payment with an end date in sight. Paying off a personal loan can save you a lot of money in the long run as opposed to making minimum payments for years on a high-interest credit card.
But what happens if your credit score is low?
You’ve probably heard that before applying for a loan, you should always check your credit score. But what happens if you’ve done that, and you find you have a low credit score?
First of all, what is considered a low score? Well, most lenders require their borrowers to have a score somewhere between 580 to 600. Those borrowers will get higher rates than those with higher credit scores, but they will be able to secure credit from most traditional lenders.
What do you do if your score falls below the 580 cut-off?
- First, you can begin to rebuild your credit. The first step is paying your bills on time, even if it's just the minimum payment. Working to pay down your credit card bills will help bring your points up as well. It’s also worth it to get a full credit report from the top three credit reporting agencies. Look over everything carefully and contact them if you see errors that could be driving your score down.
- Look into secured personal loans. A secured personal loan lets you borrow money against an asset. These are easier to qualify for than unsecured loans because you are putting up collateral. Using your collateral makes you less of a risk to a lender. This does carry a risk, if you don’t make your payments, the lender can seize your asset.
- Have a cosigner. Lenders will be more willing to lend money to borrowers if they have a better chance of getting the money back. A cosigner is guaranteeing the debt will be paid back. If the lender defaults on the loan, the responsibility will fall to the cosigner to pay it off.
- Peer-to-peer lenders may have more options for people with bad credit, than the traditional banks and lenders. Peer-to-peer lending cuts out the bank by allowing individuals to obtain loans directly from another individual.
- Shop around. Get multiple quotes from lenders. A few percentage points can make a really big difference in how much you pay over the life of the loan.
Do your research before applying for a personal loan. Find out your credit score and the minimum requirements from individual lenders. And keep in mind that having a low credit score doesn’t mean that you can’t get a personal loan.
A personal loan may get you out of a bad situation, but it won’t solve all of your financial problems. Pay your bills on time, work on paying down your debt, don’t take out loans that you can’t pay off, and you will be on your way to financial freedom.