A bad credit score is one that is below 630 points. However, bad credit should not stop you from getting a personal loan. Some online lenders deal specifically with people who have a bad credit score. They take your credit history and score into account when deciding whether to give you money; moreover, online lenders have requirements that are more flexible than those of banks are.
Although bad credit loans from online lenders can be good for most people, you should visit your local credit union whenever you need a loan. Credit unions offer lower rates of interest and flexible loan terms, even for people with bad credit. The highest interest rate that a federal credit union can give you is 18 percent.
If you do not qualify for a credit union loan, you need to compare offers from several lenders before you agree to take out a specific loan. Bad credit loan rates usually vary drastically from one lender to the next, depending on the underwriting requirements.
How to compare loans for bad credit
To get the best rates for personal loans for bad credit, you need to compare several lenders. Borrowers with fair or bad credit scores, which are a result of high credit card balances or late payments, usually pay more for personal loans than those with good credit pay. You should consider securing your loan by having a cosigner who has good credit or using collateral. Remember that even the highest rate of interest from an online lender is much lower than that of a payday loan.
The key deciding factors when choosing a loan should be the rate you will pay, including monthly payments and other fees. However, if you have bad credit, you should also look for the following:
Does the lender report to credit bureaus? – A lender that reports loan repayments to the major credit bureaus will assist you in improving your credit score. This means that you should only consider the lenders who report to the major credit bureaus.
Can I prequalify with soft credit checks? – Most lenders usually pre-qualify borrowers with a soft credit check. Doing so allows the borrower to see your monthly payment and rate before a loan is approved. However, most lenders do a hard credit check for final approval, and this may lower your credit score.
Are there ways to reduce my rate? – You may be given the choice to reduce your rate over time if you show that you are financially responsible by building savings and paying your debts down.
Secured and co-signed loans
If you have trouble making multiple debt payments, you should consider a debt consolidation plan. This kind of loan usually combines all your monthly payments into one big payment with a lower rate of interest – this could save on money in the end. If your credit score is preventing you from getting an unsecured loan, you should try your luck with secured loans.
Real estate properties and cars are the most common types of collateral used to secure loans. A few lenders will also allow bad-credit borrowers to use a cosigner who has good credit. You might get a lower rate of interest if your cosigner has an excellent credit score. However, you should know that if you default on paying the loan, your cosigner would be responsible for paying it.
Are you borrowing money to pay off another loan? A personal loan is the best option if you have a plan for handling your debts. Starting a savings habit and making a budget are the first steps towards building a better financial future.