Since loan providers consider people (or companies) with poor credit riskier than other borrowers, having a poor credit score can make it difficult to get a loan, especially one with competitive interest rates.
If your poor credit score is preventing you from qualifying for a personal loan, there are a number of different options available to you. While secured loans may not be available, one option is an unsecured personal or bad credit loan.
What Is “Bad Credit”?
Bad credit is typically reflected by a low credit score. This tends to be based on historical transactions including late bills and missed payments, in addition to your current financial situation. People might need to take out a loan for many different reasons, but generally, this is done on the condition that the individual taking out the loan is able to repay the loan in good time.
Bad Credit Loans
Bad credit loans are generally for “emergency use only” (such as payment to cover unexpected medical bills), and should only be used as a last resort. Interest rates on this type of loan tend to be significantly higher than standard loans, so they can take a significant amount of time to repay, particularly if you are already in financial difficulty.
As with standard loans, these should be properly budgeted for in order to ensure repayments can be made on time. Factors to consider before applying for a bad credit loan include:
- How much you can realistically afford to borrow
- When you will be able to repay the funds
- How much you’ll have to pay in interest
- How soon you will be able to receive funding
When looking for a bad credit loan provider, look out for one with transparent pricing and terms, ideally with a quick turnaround (some offer funds within one to two business days).
Alternatives to Bad Credit Loans
If a bad credit loan is not available to you, there are a number of loan alternatives to choose from, depending on your circumstances. It’s always advisable to budget and make a repayment plan to avoid getting deeper into debt.
Explore Other Loan Types
Other types of loans are available to those with bad credit. However, be aware that you may be required to pay additional fees on top of the interest rate for the loan, which can be higher than that charged by traditional lenders.
- Peer-to-peer (P2P) loans offered by an independent investor as opposed to a traditional lender (such as a bank)
- Online loans are provided by lenders working exclusively online, and are a quick way to secure a loan, often without an application fee or prepayment penalty
- Payday loans are notorious for their sky-high rates, and these are generally not recommended.
Speak With Your Bank
If you have been with your provider for a long time, you may be able to ask them for a short-term loan with reasonable rates. Another option is to ask for a cash advance on an existing credit card, although this can be an expensive option and is generally not advisable.
Tap Into Savings and Equity
Borrowing money from retirement savings or insurance can be an option, but again, it’s best to avoid this as it can leave you with hefty penalties to pay.
If you are a homeowner, you may be able to borrow equity in your home at a low-interest, tax-deductible rate, though if you are unable to repay the debt, you could put your home at risk.
Asking Family and Friends
While this can help you avoid high-interest rates and fees, it comes with its own risks; unpaid debts to family and friends can sour relationships quickly, adding to your woes.
An even riskier option is to add someone as a co-signer, which involves using another person’s high credit score to lower your interest rate, as any defaults or late repayments will also affect them.
These typically offer more flexibility than banks and may be able to offer a small personal loan. In most cases, membership is easily accessible, although there is a fee, and not all are insured.
While these options are designed to provide short-term relief, they’re not a long-term solution. Seeking help from a non-profit credit counselor can help you to regain control so that you can leave your bad credit history behind and be on your way to a financially healthier future