Can I Get A Personal Loan With Bad Credit?
Having bad credit is a curse! Your past will haunt you in many aspects of your life, including when applying for a personal loan. It can affect your chances of approval and can also raise the interest rates since lenders can perceive you as a higher risk compared to those with good credit standing.
However, do not let bad credit deter you from pursuing available financing opportunities. If you know where and how to look, you can still be approved for a personal loan. Read on and learn more about how to apply for a personal loan when you have bad credit.
Bad Credit is Not a Hindrance
Let’s go straight to the point! You can get a personal loan even when you have bad credit. In the same way, you can apply for a conventional mortgage, home loan, and other financing solutions if you have a poor credit rating. It may be a bit more challenging, but with the right approach, you can find the right lender.
However, the biggest challenge is finding a lender with the most competitive rates. It can be shattering to have several rejections or sky-high interest rates, but do not give up. If you are looking for potential options, check out CreditNinja bad credit loans. The latter facilitates an online request process that will allow you to qualify for a personal loan without leaving your home and even when you have bad credit.
What is Bad Credit?
Bad credit is when you have a poor credit rating. This means that your credit report shows negative factors, so lenders will equate you with being a risky borrower. This will make it hard to qualify for various financial products and services, including personal loans.
A bad credit score can be different depending on the chosen credit scoring model. Based on the FICO score, bad credit is when your credit score ranges from 300 to 579. On the other hand, based on VantageScore, a bad credit score ranges from 300 to 499.
The calculation of the credit score varies depending on the model. With FICO, the most influential factor is your payment history, which refers to how timely you have settled your past financial obligations. Amounts owed, length of credit history, new credit, and credit mix are also crucial factors. On the other hand, VantageScore looks at payment history, duration and type of credit and credit percentage utilized, total debt or balances, and available credit.
The Impact of Bad Credit on Personal Loans
Lenders carry high risks when they are extending personal loans. When borrowers fail to pay their loans, the cash flow of the lending company can suffer. Hence, they need to assess the risks inherent among borrowers, and that is how bad credit affects personal loans.
When your credit score is low, it shows that you have struggled in the past to pay your debts. Hence, the lender may assume that you are a risk. Some will deny your loan right away, but others are more considerate. While they can approve your loan, they will charge you a high-interest rate to minimize the risks.
Different Types of Bad Credit Personal Loans
If you have bad credit, below are some of the types of personal loans that you should be looking at.
Secured Personal Loan
As the name implies, this type of loan requires some sort of security. It exists in the form of collateral such as your car or home. You can qualify for high loan limits and more favorable interest rates if you can present valuable collateral. When you default on the loan, the lender has the right to recoup the collateral.
Unsecured Personal Loan
In contrast to a secured loan, an unsecured loan does not have collateral. It can be difficult to qualify, but there are still lenders that specialize in working for people with bad credit even without collateral.
A payday loan is a type of short-term loan with a high interest based on your income. It is a portion of what would be your next paycheck. The higher your income, the higher you can borrow against this loan. You will need to provide proof of income when you apply for this type of loan.
When evaluating options for a personal loan, you can also approach your bank and ask them for financing options they can extend. This will depend on your banking history. If you have a good relationship with your bank, there is a higher chance that your loan will be approved.
Like payday loans, cash advances are short-term loans with high interest. However, instead of being based on your income, the basis is a percentage of your credit limit. If you have a high-limit credit card, you can take out a bigger cash advance. The interest rates depend on the terms of the card provider. Most cards will impose a daily, weekly, and monthly limit.
How to Get a Personal Loan if You Have Bad Credit
If you have bad credit, here’s how you can qualify for a personal loan with competitive rates.
- Start by finding a bad credit lender. Do not waste your time applying to lenders that are known for working only with people who have stellar credit scores.
- Look at multiple options. Do not immediately settle for the first lender that you see. Take time to compare their rates and other terms.
- Ask around. Read reviews. Learn from the experiences of other people. This way, it is easier to narrow down the options for lenders.
- Request for a shorter repayment period. This can make the borrower perceive you as less of a risk.
- Show that you can repay the loan. Provide proof of employment and other documents that can put the minds of lenders at ease. You might also want to offer collateral.
How to Improve Your Credit Standing
In the long term, the best thing to do is to improve your credit standing. This will not only qualify you for more competitive personal loans but also other financial products and services. Below are some of the things to do to boost your credit score:
- Review your credit report. If there are inaccuracies, contact the credit reporting bureau and have them corrected.
- Set up payment reminders. By paying your dues on time, you can be perceived as a more responsible borrower.
- Aim for a credit utilization of less than 30%. If necessary, apply for a higher credit limit. A lot of banks will allow you to do so online.
- If you have several outstanding debts, it is a good idea to consider consolidation. This means that you will only have a single payment to deal with.
- Be patient. Improving your credit standing does not happen overnight. It can take months or even years.
Other Reasons for the Rejection of your Personal Loan Application
While bad credit can affect the outcome of the personal loan application, it is not the only thing that matters. Below are other factors that lenders consider:
- Insufficient Income: A low income can equate to your inability to repay your loans on time. This will increase your risk as a borrower, and hence, your loan application can be denied.
- High Loan Amount: If you try to loan an amount that is beyond your financial capacity, you can be seen as a risk by the lender. The amount that you should borrow must be proportional to your income.
- Submitting Multiple Applications: When you submit multiple applications within a short time, lenders can also see you as a risky borrower. If possible, wait a few months before you submit another application.
- Incorrect Loan Purpose: Lenders will have clear criteria about where you can use the loan. For instance, if it is a business loan or to be used for college tuition, then you should not apply for a personal loan and consider other financing solutions available.
- Failure to Meet Other Requirements: Different lenders will have various requirements. In most cases, you should be at least 18 years old, a US citizen or qualifying resident, must be employed, and must have a valid bank account.
What To Do When Your Personal Loan Application is Rejected
Things might not always go to plan. Despite some lenders accepting applicants with bad credit, the universe might not be on your side and your loan can still be denied. When such happens, here are some of the things to do.
- Ask family and friends for financial assistance that they can extend. Do not hesitate to approach people you know when the need arises.
- Look for other lenders. Do not immediately give up after a single rejection. There are plenty of options if you know where to look.
- Call the lender and ask for the reason for the rejection if none was given. This will let you know what can be improved.
- Review the documents that you have submitted. There can be discrepancies or doubts about their accuracy.
- Work on improving your credit rating. It can take time, but once you have rebuilt your credit standing, you will be perceived as a lesser risk by the lender.
Having bad credit can be disheartening, but do not let it hinder you from applying for a personal loan. With the right lender, you can gain approval without having sky-high interest rates! You may be perceived as a higher risk because of your credit history, but this does not take away your privilege of being able to enjoy available financing solutions.