Getting a loan can sometimes be a lifesaver. Nearly everyone at some time needs to make a purchase which will make a difference to life. There was a time when it involved a visit to the bank to persuade a reluctant manager, but now it is often a simple matter of completing an online form and the loan can be agreed within seconds. Unless that is, you have a poor credit score report, in which case the process can be frustrating and disappointing.
How to Get a Personal Loan with Bad Credit
So what are your options if this applies to you?
Is Your Score as Bad as You Think?
Before you start to look for a loan, check your credit report score. You will need to do this with each of the credit report agencies. It is not unusual for people to find mistakes, like a debt which you settled still listed as outstanding. On the whole, it is relatively easy to get such mistakes put right by contacting the lender and getting them to correct the administrative error.
Improve Your Score
It is a fairly long-term process, but it is always worth setting things going to improve your score, by paying off as much debt as you can when you can. The lower the percentage of debt to your income or borrowing limit, the better things will be. Be ruthless with cutting your expenses.
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At the same time, of course, you must avoid making your score any worse. For instance, if you are having difficulty meeting your car loan payments on time, you could research car loan refinance options to spread the payments—it will cost more in the long-term, but it may avoid missed payments.
One of the worst things you can do is to fire off applications hopefully. Each of them will check your report and every check that does not result in a loan will damage your score.
Avoid the Easy Path
You don’t have to look far to find someone who will offer a loan without any form of credit check. Payday lenders and auto title loans rely on enlisting borrowers who are desperate and their interest rates are generally very high indeed. It is easy to get trapped into paying far more than you borrow. Sensitize your antennae to bad signs, like pressure to make a quick decision.
If you have assets (typically, a house or a car) that you can put up as collateral, providing some security to the lender, then you may be able to get a loan on better terms than you would for an unsecured loan. However, the reason is that some of the risk is transferred from the lender to you. So, never do it unless you are absolutely sure you can cover the repayments.
Research the Market
It is certainly not impossible to get a loan even with a poor credit report. It takes longer and it will cost you more, but with the resources of the internet, you will be able to find lenders who will take you on. Start with your own bank, especially if you have been financially sound for most of your history with them—they should be able to look beyond the present snapshot credit report. Local credit unions are also worth investigating for a more flexible response.
Make a chart and compare lenders on several criteria:
- Interest rates. Always compare the APR, which may differ from the main advertised rate but is a standardized
- Additional fees. All sorts of fees are possible and a good lender will be very transparent about any extras which they will add to the amount you are borrowing.
- Hopefully, your financial situation will improve during the duration of the loan and you will probably want to refinance your deal on better terms later.
- The Better Business Bureau is a good place to start—the accreditation rating is based on a number of factors and there are also user reviews. Good lenders will have satisfied customers—but proportionately there are likely to be more negative reviews than negative customers.
A final reminder: don’t make an application for a loan unless you are fairly sure that it will be granted. If possible, get an informal agreement from the lender first—ask if they will submit a ‘soft inquiry’ to the credit agencies. Finally, never be tempted to falsify the information on your application, as you will always end up in more trouble than you started with.
Hayden Collins works as a personal finance consultant and offers up some tips to readers of his articles each month.