How to Get a Personal Loan with Bad Credit

Author: Geoffrey Ejiga

Are you trying to get a personal loan with a bad credit score? Then you probably know how difficult it can be. Well, don’t worry. 

This guide will walk you through getting a personal loan despite having bad credit. Enjoy!

What is the Minimum Credit Score to Get a Personal Loan?

Like every other type of loan, your credit score determines whether you are a trustworthy borrower. Lenders rely on your credit score to estimate how risky it would be to lend you money. 

Below are the different levels in the credit score rating system based on FICO scores:

• Exceptional: 800-850
• Very good: 740-799
• Good: 670-739 
• Fair: 580-669
• Poor: Under 580

Lenders also look at other factors that might affect your ability to repay before giving you a personal loan. For example, a lender may check your earnings history, asset profile, total savings, debt history, late payments, etc.

How to Get a Personal Loan with Bad Credit 

Finding a lender to give you money with bad credit is difficult, but not impossible. The application process is the same whether you have bad credit or not.

Follow the steps below to apply for a personal loan:

Know your Credit Score

The loan amount and the rate a lender give are highly dependent on your credit scored So it’s always a good idea to check your credit reports to fix any errors or resolve bad credit judgments before applying for a loan. 

The best loans are reserved for people with good credit scores while having a bad credit score comes with fewer options.

Check for Bad Credit Lenders and Compare

Many lenders immediately deny an application if they see a bad credit score. But the best places are credit unions and online lenders.

Besides credit scores, credit unions also use loan history as a prerequisite to approving a loan. Another benefit of credit unions is that their APRs are capped at 18%.

However, online lenders like Universal Credit and Avant, offer loan options for borrowers with bad credit. Furthermore, many online lenders are more lenient with credit score ratings than other lenders; some of them use their credit scores instead of FICO scores.

Regardless, it’s best to compare offers from different lenders and pick the most suitable.

Pre-Qualify for Loan

The next step is pre-qualification which shows you what to expect in terms of rates and loan amount. Pre-qualifying also lets you know if you qualify for a loan. Check with your lender to see if they offer pre-qualification.

Make your Application More Convincing

A bad credit score is already a bad sign to lenders. So try making your loan request more appealing by co-signing.

Lenders can ask your co-signer to pay the loan if you can’t. While this is risky for the co-signer, it enhances your chance. 

Formally Apply for the Personal Loan to Get Funded

The final step is to prepare all the documents needed to apply for a loan. The documents may include W-2s, social security numbers, financial statements, pay stubs, etc.

Lenders may ask people with bad credit to provide more information to understand how much risk they are taking.

Strategies to Increase your Chances of Loan Approval with Bad Credit

Your bad credit score already tells lenders that it’s risky to loan you money, but all hope isn’t lost.

Below are some strategies you can use to get a personal loan with a bad credit score:

Request a Lower Amount

The more money a lender gives you, the more the risk that comes with it. Therefore, you should try to request a lower loan amount. 

Provide Collateral

You can use collateral to secure the loan and increase your chance of getting approved. Collateral appeals lenders because they can seize the property if you default on loan repayment.

A personal loan with collateral involved is a form of secured loan.

Find a Co-signer 

If your credit score is too low, you can try leveraging another person’s credit score. Find someone with a good credit score and ask them to co-sign for you.

What to Know before Signing a Personal Loan Agreement

When you eventually find a lender who’s willing to give you a loan despite bad credit, here’s what you need to know before signing the final agreement:

• The amount of money you borrow and the APR (Annual Percentage Rate).
• The penalties involved for late payments and early payoffs
• What happens to you or your collateral if you can’t repay the loan.

What to Do if you were Denied a Personal Loan

If you don’t get personal loans with bad credit, then you should start exploring other loan options like:

• Credit unions
• Family or friends
• A co-signer loan
• Borrowing from the equity in your home
• Peer-to-Peer Loans
• Other secured and unsecured loans
• Negotiating a loan agreement with your bank
• Cash advances
• Payday loans

Final Thoughts

Having a bad credit score negatively affects your ability to collect loans. However, bad credit shouldn’t stop you from getting a much-needed personal loan. Study the point discussed in this article if you are having problems collecting personal loans with bad credit.