How Can I Get a Personal Loan with Bad Credit?

When you have a bad credit score, you may find it challenging to get a traditional loan. But that isn’t the only option, as there are bad credit loan lenders who specialize in a more accessible product. What is a personal loan with bad credit, how does it work, and how can you get one? Continue reading to find out! 

Key Takeaways

• Loans for bad credit offer higher interest rates and stricter terms than other loans.
• Securing your loan with collateral or a co-signer can increase your chances of loan approval and may also give you more favorable terms.
• Try improving your credit score by paying off debts and lowering your credit utilization rate.
• Watch out for lenders who ask for money upfront.

What Is a Bad Credit Loan?

A personal loan with bad credit is a financial product designed for those who do not qualify for traditional borrowing methods. Typically, the applicant’s credit score is less than 600. 

Loans with Bad credit carry higher interest rates than traditional loans, with up to 35.99% APRs. This is because people with bad credit are viewed as higher risks to the lender. The loan amount is typically capped at $50,000, and the repayment term can range from one to five years.

You may ask why people take bad credit loans if they carry less favorable terms. That’s often because the borrower is facing a financial emergency that they need to address as soon as possible. 

Factors that Affect Your Credit Rating

Those with a low credit score may wonder why they don’t have a high one. There are five major factors that affect your credit score. 

• Your payment history can make up 35% of your credit score. When you make payments on time, your credit goes up. If you miss a payment or are late, your score goes down.
• Your credit utilization accounts for 30% of your score. Paying most of your debt and keeping your credit utilization under 30% can positively impact your credit score. Lower utilization generally indicates responsible credit management.
• Your credit history accounts for 15% of your score. A long history can have a positive impact.
• Your new credit inquiries make up 10% of your score. Opening multiple credit accounts in a short period of time can impact your credit negatively. 
• The types of loans you carry make up 10% of your score. It’s preferable to have a mix of different types of credit, such as credit cards, mortgages, auto loans, and personal loans, as it shows that you can manage different types of debt.  

How to Get a Loan with Bad Credit

There are steps you can take to make the process easier. 

Check Affordability

The first thing you need to do before you apply for a bad credit loan is to ensure you can afford it. Lenders like to see that you earn enough money each month to cover your financial obligations.

Online loan calculators can help you get an idea of your loan amount, term, and interest rate. This step can help you better understand whether you can afford the loan and what adjustments you may need to make. 

Choose a Lender

You will find that there are multiple lenders that specialize in personal loans with bad credit. But don’t just say yes to the first lender who agrees to work with you. Shop around and compare what each lender is offering. 

Also, consider lenders that offer pre-qualification so you can check your loan options without affecting your credit score. Pre-qualification results include your potential interest rate, loan amount, term, and monthly payment. So, if possible, pre-qualify with multiple lenders and choose the one that works for you. 

Gather Your Documents

To speed up your loan process, consider gathering all the necessary documents you need to apply. These typically include your:

• Government-issued ID
• Social Security number
• Bank account statements
• Proof of income (e.g., pay stubs, tax returns, etc.)
• Proof of address (e.g., utility bills, lease agreements, etc.)
• Employment verification

Note that each lender has unique requirements and can ask for additional documents.

Submit Your Application

After you have been pre-qualified and have chosen your offer, it’s time to submit your application. You can apply online or by visiting a brick-and-mortar store.

Ways to Enhance Your Chances of Getting a Bad Credit Loan

If you have a low credit score, it might be harder for you to get a loan, especially with good terms. But that’s okay. Here’s what you can do to improve your chances of qualifying for a bad credit loan.

Add a Co-Signer

Adding a co-signer who has good credit may improve your chances of approval. You may even qualify for lower rates. 

This works like a guarantor loan where your co-signer takes full responsibility for the loan in case you miss your payments. 

A co-signer should have good credit and sufficient income. You can consider a trusted family member or good friend. However, know that this can jeopardize your relationship with your co-signer and hurt their credit score if you fail to make timely payments.

Ask for a Secured Loan

Consider putting up collateral to improve your chances of approval. If you have assets like a car, a home, or even a savings account, you can use that to secure your loan. This will lower the risk for the lender, as they will have something to claim if you fail to pay. By doing so, you may also get a lower interest rate and better terms. 

Request a Smaller Loan Amount

If you need money fast, try applying for a smaller loan. Smaller amounts can be less risky for the lender, so getting approval may be easier. If you show a good history of repaying smaller loans, you can later apply for a larger loan amount with potentially lower interest. 

Alternatives to Loans for Bad Credit

Taking out a personal loan with bad credit can be costly in the long run. So, before you rush into it, why not check for alternatives? 

Borrow from a Family Member

If you have a family member or a close friend who may help, reach out to them. This is especially good for people with bad credit as borrowing from family doesn’t require a credit check. 

You may also be required to pay very little interest compared to taking out from a lender. Your family member may even lend you the money without any interest.

Try Buy Now, Pay Later Options

If you’re facing an emergency and need to buy something, a “buy now, pay later” loan provides a lifeline. This at-checkout financing option has you pay for the item in weekly or monthly installments. 

Consider Debt Consolidation Loans

If you need money to pay off bills, consider debt consolidation loans. This type of loan combines all your existing debt into one loan with a single monthly payment and sometimes with lower interest rates. 

Please note that this product typically requires at least a fair credit score. So, if you boost your score a bit, this may be an option to consider.

Keep an Eye Out for Bad Credit Loan Scams

Unfortunately, there are scammers who pretend to be reputable lenders. Before you deal with any lender, check for feedback on the lender. You can read reviews on platforms like TrustPilot, Google Reviews, and Consumer Affairs to read the experiences of previous borrowers. 

Signs to Watch Out For

People with poor credit are common targets for scammers. Here are some telltale signs that you are dealing with a scammer:

• They ask for upfront fees
• They offer guaranteed approval with no credit check
• They pressure you to take out a loan

Legitimate lenders typically run a credit check and only qualify you for a loan after you apply.

Taking out a bad credit loan can be costly, so make sure you can afford your payments to avoid hurting your credit even more. If you’re already in debt, it may not be the best time to take out another loan. Instead, check for alternatives to work towards restoring your credit and financial health.

FAQ

Let’s address your most frequently asked questions about personal loans with bad credit.

Is Lending for Bad Credit Legit? 

There are reputable lenders who offer this type of financing. However, there are also scammers. Make sure you do your own research to borrow from reputable lenders. 

What Is the Maximum Loan Amount I Can Get With a Poor Credit Score? 

The maximum loan amount you can get depends on many factors, including, but not limited to, your financial situation, the lender, and the local financial regulations. Generally, bad credit loan amounts range from $1,000 up to $50,000. Some lenders may also give you larger amounts if you secure your loan with collateral or get a co-signer. 

How Can I Get a Loan With Bad Credit? 

There are no sure-fire ways to get a loan when your credit score is low. If you can find funding, it will likely be expensive. Your best option is to work on building up your credit score so that you can qualify for affordable financing. However, if you need money now and can afford higher interest rates, one way to get a loan with bad credit is to find a lender specializing in this type of financial product.