In 2019, approximately 53% of all Americans had a bad credit score. This reflects financial struggles among the people, with a majority of them being unable to service existing loans.
If you’re struggling to get out of this financial quagmire, you shouldn’t despair fast. Numerous institutions offer loans for people with bad credit.
This article will offer invaluable tips on how your loan can be approved despite your bad credit score.
What is a Bad Credit Score?
A credit score is obtained after an in-depth consideration of various factors. According to FICO, the following factors are used to determine your aggregate score:
- New Credit (10%)
- Credit Mix (10%)
- Length of Credit History (15%)
- Amount Owed (30%)
- Payment History (35%)
When all these items are considered, loan candidates are awarded scores ranging from 300-850. If your score is under 650, you’re considered a high-risk client with a higher chance of defaulting.
Such clients will be charged relatively high interest or denied the loan altogether. However, some lenders will market to clients with a credit score of below 600 without whims.
Credit Score Categorization
The widely accepted categorization of credit scores is as below:
- Excellent: 760-850
- Very Good: 700 – 759
- Fair: 660-699
- Poor: 620-659
- Extremely Poor: Below 620
What is a Bad Credit Loan?
This is a loan offered to consumers with bad credit scores to help them with basic financial obligations, such as paying rent and other bills.
While some institutions are willing to offer loans to people with bad credit scores, it comes at a cost. The interest rates are often quite high.
You’ll be required to pay fixed monthly installments over 1-3 years depending on the loan amount. The more flexible the repayment terms, the more interests you’ll be required to pay.
How to Get a Loan with Bad Credit Score
You can get this loan facility from different financial institutions including banks, credit unions, P2P, cash advances, and online personal loans for fair credit facilities.
Where to get the bad credit loans is elucidated below:
#1 Credit Unions
If you have a community-based credit union, they may consider your loan application despite your bad credit score. Additionally, you may look for one that’s associated with your employer since they will have a way to verify your character, thus increasing your chances of approval.
You must note that this option offers some of the cheapest loans, a majority of them having an interesting ceiling of 18%. If you’re in Special Forces, you can get the loans from their specialized credit unions.
Also, state/government employees will have direct access to State Employees Credit Union for relatively affordable bad cred loans.
#2 Family and Friends
When your credit score is not promising, you may turn to friends to resolve your financial stress.
While the qualification process may not be grueling, there is a risk of strained relationships in case of a default. As such, you should only opt for this channel if you’re ready to respect your part of the bargain.
If you’re the one lending the money, you should always insist on a written agreement.
#3 Peer-to-Peer Lending
P2P is a modern online platform that’s designed to connect you with other individuals who are willing to offer loans to people with a bad score.
When you need the money and you want to cut the intense vetting process by banks, you can post your loan details on various P2P websites, indicating all the terms. This way, the request will be accessible to many investors.
When an interested investor is ready to fund your request, they will get in touch with you for the final deliberations. While this option also considers the credit score, the investors are relatively accommodative.
#4 Online Personal Loans
There are many online lenders that you can approach for a loan despite your bad score. These platforms are particularly helpful when you want a quick loan.
They can assess your request, process it, and deposit the money in your account within a few hours. As such, you can be sure that you can get funding for your emergency activities or debt consolidation.
Even better, a majority of these institutions don’t ask for application fees. Additionally, the applicant’s credit score only contributes to a small percentage of the total aggregate score.
#5 Get Someone to Co-Sign the Loan
If you get a friend with a good credit score, you can request them to co-sign a bad loan. In that case, the financier will make a decision based on the credit history of the friend and not yours!
Consequently, you’ll get a loan at relatively low interest and your chances of getting approved will increase significantly.
#6 Bank Negotiations
This is a technique that will only work for loyal bank clients. If you have banked with a given institution for a long time, you may request them to consider your previous history.
This is especially useful if you’ve always had a good credit score until a recent mishap. When you’ve built a trustworthy portfolio with the bank, you can be sure that they will consider your request.
However, most banks will decline to offer the whole amount! In such a case, you’ll have to either adjust your budget downwards or look for another financier to top up the deficit.
#7 Cash Advance
This is the most expensive option for a bad loan! You should never use it unless you’ve run out of options. It involves using your credit card line to apply for the bad loan. The interests are extremely high and out rightly exorbitant.
Secured vs. Unsecured Bad Loans – Which One Is Best?
If you have a bad credit score, you can be sure that getting an unsecured loan will be a hassle. Not many financial institutions will believe your repayment promises when you’ve defaulted in the past.
As such, you should consider taking a loan against an asset if you want it approved fast. In this case, the financier will have a guarantee that you’ll do everything possible to pay the loan and keep your asset.
If you have a bad credit score, getting a loan will not be easy. However, they are numerous options that you can use to access bad loans and meet your financial needs.
A majority of the available options are relatively expensive due to the high risk of default. If you can’t get a loan from friends and relatives, then you can try the other methods outlined herein.