How to Get A Loan With Bad Credit – I have come across a lot of people asking me the same question, “How can I borrow money with bad credit?” Do you fall into this category of people looking for how to get a loan with bad credit? Then you are on the right page.
Finding lenders to lend you money if you have a bad credit is quite challenging. However, it is not impossible. Having bad credit or no credit at all makes it difficult for you to get a loan. This is because traditional banks view you as a high-risk customer.
They have a strong reason to believe you might falter in repaying the loan. Traditional big banks have standard lending guidelines and conditions. They won’t loan you money until you boost your credit score. This makes you start wondering how to get a loan with bad credit.
If you are one of those “I need a loan but I have bad credit” people, don’t lose hope. I will discuss 6 ways on how to get a loan with bad credit with you. Just keep reading!
Before we discuss further, you need to understand how your credit relates to your loan options. First of all, you have to know all about your credit score. Some prominent indications of a bad credit score are:
- You pay higher interest rates than advertised.
- Cell phone companies refuse to give you a contract.
- You experience difficulty in getting a lease for your house.
- You have a habit of making late payments for housing and other monthly bills.
- Your checking account is overdrawn regularly.
All of the above affect your credit score negatively. This makes it harder for you to access loans. So without wasting time, these 6 options will enlighten you on how to get a loan with bad credit.
6 Ways on How to Get A Loan With Bad Credit Or No Credit
1.Use A Home Equity Line Of Credit
A home equity line of credit (HELOC) is simply the monetary value of your home minus your mortgage(1). In other words, the difference between the amount your home can be sold for and your mortgage. If you have enough equity in your home, you could get a line of credit with a low-interest rate. Your credit score doesn’t limit your access to home equity loans.
A major advantage of the home equity line of credit is the extended loan term. It usually lasts for 15 or in some cases 30 years.
2. Secure Loans From Credit Unions
Credit unions are a great answer for people with the question “how to get a loan with no credit?” They offer similar services to that of traditional banks. However, they are not about making profit. Credit unions don’t consider your credit score as a major criterion for securing loans. The twist, however, is that you have to convince them to grant you membership. They look at your financial health, but also make a decision based on factors like:
- Your area of residence
- Where you work
- Where you went to school.
You can search for credit unions close to you through mycreditunion.gov or findacreditunion.com. Compare loans from several credit unions before you sign all the necessary paperwork. This is to ensure you know you are getting the most affordable interest rate possible.
3. Try Peer To Peer Lending
Peer to peer lending is a recent loan form. It came into existence in 2005 and has gained strong popularity since then. It is an online platform where you borrow money from individuals rather than an organization. This lending method is sometimes called person to person lending. On this platform, borrowers tend to secure loans with low interest rates.
Borrowers list the amount of loan they need and its purpose on the platform. Investors then screen these listings and select the ones that match their criteria. Credit scores are also considered during the screening. However, investors can give you loans even with a bad credit based on discretion and empathy.
You can check out some of these peer to peer lenders out:
- OppLoans: Is your credit score lower than 630 or even zero, try OppLoans. It offers affordable loan options for those with bad credit.
- Upstart: Borrow money ranging from $3,000 up to $50,000 for as long as 5 years. Their APRs is from 9.45% to around 29.99%. The least possible credit score you should have to be eligible for upstart loans is 640. However, your credit history must be clean. Upstart also considers applicants with no credit score.
- Avant: Avant gives out loans ranging from $2,000 to $35,000. Impressively, you could receive your funds as soon as the next business day. APRs range from 9.95% – 35.99%.
Although the minimum credit score varies, you have a much better chance if your score is above 580. Avant is available in all states except Vermont, Colorado, West Virginia and Iowa.
4. Take Loans From Your Friends And Family
Have online peer to peer groups declined to lend money to you? Are you worried about running out of options on how to get a loan with bad credit? Perhaps you should turn to family or friends for a loan. Sometimes those closest to you are your best sources of funds and a family loan can benefit everyone involved.
You should always treat any loan from someone close to you just as if it were a serious business transaction between you and a stranger. That means it should be formal with clear documentation and legally recorded. To avoid future problems, create a written contract that includes the interest rate, payment terms, any collateral you put up for the loan, and what happens if you fail to repay the debt.
The point is that a family loan must benefit everyone involved and should really be a last resort. You don’t want to risk straining a close relationship over a bad debt or a misunderstanding about money.
5. Approach A Co-Signer
If you don’t have a friend or family member who’s willing to give you a loan. You can still approach someone with good credit who trusts your capacity to repay the loan. You can ask him or her to be a co-signer on a personal loan from a traditional lender. With a qualified co-signer, the lender will set the loan terms based on the credit score of the person with good credit. Who will then be equally responsible for repayment.
The lender will record all payment information on both yours and your cosigner’s credit reports. So if you fail to pay back the loan, or you are late with payments, you will severely damage your cosigner’s credit score. However, if you make payments on time, your own credit score will improve. This makes it easier to obtain future loans without a co-signer.
Just remember that if you don’t repay the debt, the creditor will look to your co-signer for full payment. Failure to repay the loan early or at all could jeopardize any further relationship with your co-signer.
6. Opt For A Secured Loan
Secured loans are an excellent option for borrowers with bad credit or no credit to get loans. With secured loans, a borrower offers an asset which can be a home or a car or savings or even stocks, as collateral. It makes lenders more likely to approve a loan because they know they can take possession of the asset to cover their losses if the borrower defaults in paying back.
Secured loans usually attract lower rates of interest, better conditions of agreement and access to more money than unsecured bad credit loans. They also can boost your credit score, if paid off on time.
The amount of equity the asset you offer as collateral has determined the amount of money you can borrow. This is why a lot of people regard their home as the best form of collateral for a secured loan.
To calculate the equity in any asset is to subtract the amount owed from its market value. Let’s assume the market value of your vehicle is $5,000 and you owe $200, then your equity is $4,800.
In trying to get a secured loan, make sure you avoid high-interest title loans and payday lenders. They will only loan money to you if you agree to pay back at a high and ridiculous interest rate. These loans often lead you into a bad debt cycle. The lenders intentionally make the loans unaffordable for borrowers.
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If none of these 6 options on how to get a loan with bad credit works for you, try to boost your credit score. This will increase your chances of obtaining a traditional loan from big banks. You can improve bad credit by adhering to the following tips:
- Check your credit report regularly for errors. A good place to look your credit report up for free is at annualcreditreport.com
- Setup payment reminders to enable you to make payments on time.
- Reduce your debt. Try to stop using credit cards for a while to achieve this.
- Pay your bills on time.