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How to Get a Personal Loan With Bad Credit

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You’ve encountered a major expense and you don’t know how you’re going to pay for it. It happens to the best of us – so don’t feel like you’re alone.

After taking care of the necessities, it can be difficult to find the extra money to pay for unexpected expenses.

Many people will take out personal loans when they find themselves in a financial pickle. A personal loan gets you a lump sum of cash that you pay back with monthly payments.

But there’s one major catch: To qualify for a personal loan with a good interest rate, you usually need a good credit score.

So, what should you do if your credit score isn’t up to snuff?

Don’t let a bad credit score get in the way of applying for a loan. Getting a personal loan with bad credit IS possible, you just need to know how to do it.

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Credit Scores: The Good, The Bad and The Ugly

Terms like “good” and “bad” are subjective. But in the world of credit, things are pretty cut and dry. Here are the ranges you need to keep in mind:

Credit ScoreHow am I doing?What does this mean?
800-850ExcellentYou’re ahead of the pack. You should have no problem getting a loan and scoring low interest rates.
740-799Very GoodYou’re still doing great. You’re making your payments on time and should have no trouble getting approved by lenders.
670-739GoodYou can still earn competitive interest rates, but you won’t command the same ideal rates that you would in the higher ranges.
580-699FairYou may have a couple of dings on your credit history, but there aren’t any major delinquencies.
300-579PoorThere’s significant damage to your credit history, likely because you defaulted on multiple credit products.

If you find yourself in the “poor” range, don’t despair. Much like your feelings about skinny jeans and side parts, your credit score can change. Think of a poor credit score as a golden opportunity for improvement.

What’s so Bad About Bad Credit?

If you’re new to the world of credit, the above numbers may seem a bit random. Does it really matter if your credit score is bad, fair or excellent?

The answer is a resounding YES. Bad credit isn’t just a bad look. A low credit score will limit your loan options and leave you with expensive loan offers or worse, loan denials.

Whether your bad credit score is because of a late payment or a loan that’s in collections, your score tells lenders that you may have issues making payments in the future.

If you miss a payment, you will cost your lender money. Many lenders tend to favor those with good credit because it limits their risk.

When lenders do offer loans to borrowers with bad credit, they reduce their risk by charging a higher interest rate and origination fee, which means you’ll pay a higher annual percentage rate (APR).

Get the Ball Rolling: How to Get a Personal Loan With Bad Credit

You’ve weighed the pros and cons and decided that a bad-credit loan is right for you. Here’s how to get a personal loan with bad credit:

Get cozy with your credit report

First, figure out what you’re working with by checking your credit report. You can order a credit report from any of the three major credit bureaus: Equifax®, Experian™ and TransUnion®.

These companies are all required to issue free credit reports every 12 months. If you already ordered a credit report during the year from one agency, you can request a new, free report from another.

Once you have a copy of your credit report, you’ll have a better idea of your potential as a borrower. Knowing your score will make it easy for you to figure out if you’re likely to prequalify with certain lenders.

Figure out how much you need to borrow

Before you start applying for loans, figure out exactly how much you need to borrow. You’ll waste money paying interest on funds you don’t end up using if you apply for more than what you need.

Also, borrowing extra will just tempt you to spend money you don’t have.

Get pre-qualified

Getting prequalified for a loan is sort of like sending in a resume and cover letter for a new job. With prequalification, you send the lender information that shows you’re up to the task of repaying your loans on time.

Typically, you’ll need to send over:

  • Income information
  • Employment documents (such as tax returns or W-2s)
  • Asset statements
  • Retirement and brokerage accounts
  • Your credit score

The lender will use this information to determine if you qualify. If they decide it’s a good fit, they’ll send over a quote with an estimated APR and loan amount.

See What You Prequalify For

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Get quotes and compare offers

Getting a personal loan with bad credit is a lot like shopping for a new car: You don’t want to leave the lot with the first car you test drive.

You aren’t obligated to accept an offer just because a lender has prequalified you. Get prequalified by multiple lenders, so you can compare costs without affecting your credit score.

Most loan offers are good for 30 days. So you can take your time to decide.

Still Don’t Qualify? Don’t Sweat It

If you’ve applied with a bunch of different lenders and none of them are accepting you or offering good deals, don’t panic just yet.

There are steps you can take to make your loan application more attractive to a lender, including:

1. Getting a co-signer on board

Do you know someone close to you who has outstanding credit? If so, you can ask them to co-sign the loan.

Keep in mind that if you miss a payment or default on your loan, both you AND the co-signer will be on the hook, and both of your credit scores could be impacted.

2. Opt for a secured loan instead of an unsecured loan

When applying for personal loans, most people begin by applying for unsecured ones. An unsecured personal loan doesn’t require you to put anything on the line as collateral.

With secured personal loans, you’ll need to put a car, house or some other valuable asset down as collateral. If you default on your loan, your lender will have the right to seize the asset.

While putting a valuable asset on the line can be scary, if you’re confident in your repayment abilities, a secured loan can up your chances of approval.

3. Build that credit, baby

Sometimes, all you have to do is boost your credit score by a few points to appear more favorable to lenders. And yes, we know that boosting your credit score is easier said than done.

There’s no way to vastly improve your credit score overnight, but you can use these tips to build credit fast:

  • Ask for a higher credit limit to improve your credit utilization ratio
  • Make frequent payments
  • Keep credit cards open
  • Use a secured credit card
  • Become an authorized user on a friend or family member’s account

4. Meet with a credit counselor

A credit counselor is sort of like a personal trainer for your finances. But instead of whipping your body into shape, they’re here to whip your wallet into shape.

Simply meeting with a credit counselor once won’t boost your chances of loan qualification, but a credit counselor can give you tips on how to budget better and manage your money. They can help you devise a debt management plan, and they can look over your credit report with you and help spot any errors.

5. Look into alternatives

While a personal loan is a great way to get money into your hands quickly to pay off a debt, it’s not the only way. Here are some of your other options:

  • Credit card: Instead of a lump sum of cash that you repay in monthly installments, a credit card lets you draw out money as you need it
  • Payday loan: While you’ll have access to a small amount of cash, payday loans come with sky-high interest rates, so this should be a last resort
  • Line of credit: Like credit cards, lines of credit are revolving, meaning you can pull from them as you need. You can choose from both secured and unsecured lines of credit

Know the Pros and Cons of Bad-Credit Loans

Take the time to closely examine the pros and cons of bad-credit loans:

Pros of Bad-Credit Loans Cons of Bad-Credit Loans 
✅ Get approved fast (in some cases, you can have the money in your account the same day)
✅ Get a lower interest rate than what you’re currently paying on your credit card
✅ In some cases, flexible repayment terms that can stretch from 1 – 5 years
✅ If you make on-time payments, you have the chance to improve your credit score
⛔️ Tend to come with high interest rates
⛔️ You may need to offer collateral, such as your car or house
⛔️ Higher fees and penalties (origination fees, late fees, prepayment penalties, etc.)
⛔️ Increases your overall debt and adds one more payment to worry about

Getting Personal About Bad Credit

While qualifying for a personal loan with bad credit can be tough, it’s certainly not impossible.

With the tips from this article, you should be qualified in no time.

See What a Personal Loan Can Do for You

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Checking your options won’t affect your credit score.

The Short Version

  • A bad credit score makes it tough to qualify for a personal loan, but not impossible
  • To qualify for a personal loan with bad credit, get a credit report, figure out how much you need to borrow, get prequalified and compare lender quotes
  • If you don’t qualify for a personal loan, increase your chances of approval by working with a co-signer, applying for a secured loan or boosting your credit
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