How To Get A Personal Loan With Bad Credit?

How to get a personal loan with bad credit is one of the most common questions any borrower asks.

While it is possible, there are a lot of factors to consider before getting one. This includes identifying the types of personal loans available and choosing where to apply.

Here’s a run-through of the essentials how to apply for a loan with bad credit.

How to Get a Personal Loan with Bad Credit: a Guide

Step 1: Know Your Credit Score

Before applying for a loan, the first thing you can do is to know your credit score. This will give you an idea how your credit looks like when a lender reviews it.

Also, when you check your credit score, it won’t affect your credit as long as you conduct a “soft inquiry” or “soft pull.”

Step 2: Look at Your Credit Report

The next step is to look at your credit report. You may do this with the three credit bureaus making sure all the details are correct.

If you see anything wrong with the information, you can report and dispute it.

The three credit bureaus are Experian, Transunion, and Equifax. Also, when you check your credit report, you can gauge what you might need to do to repair your credit.

Bad Credit

Some of the common signs of a bad credit are the following:

  • High-interest rates compared to what was advertised
  • An overdrawn checking account on a consistent basis
  • Cellphone companies don’t want to provide you a contract
  • You pay only minimum payments on credit cards with high-interest rates
  • Late payments history when it comes to utility, other monthly bills, and housing
  • Have difficulty acquiring a housing lease

Step 3: Proof of Repayment

Another important step how to get a personal loan with bad credit is having a proof of repayment.

Lenders want an assurance you can repay the loan. This means the amount you can borrow depends on your ability to repay the loan.

Having a cosigner or showing a proof of income are ways you can try to offer them your options for repaying.

Cosigner

The person who guarantees that you can repay the debt is a cosigner.

The creditor will also collect the debt from a cosigner in cases where the borrower can’t make the payments.

Keep in mind, a cosigner must have a good credit score and credit history.

Step 4: Consult Your Credit or Bank Union

Your credit or bank union already has an idea of your profile when it comes to finances.

They can offer to loan you a small amount and they can be more flexible when it comes to their lending standards.

One of the questions you can ask is if your credit score will qualify for you to apply for a personal loan.

Step 5: Know The Loans Suitable for You

It is important to know that the more inquiries there are on your credit, the more it can lower your credit scores.

Hard inquiries can result in less 5 or 10 points on your credit score.

With that in mind, you will need to avoid applying for every loan you encounter. Or you can also do your research first before applying.

Secure Loans

These are some of the more familiar types of loans. You can use these for a mortgage or car loan.

When you decide to borrow money using a secured personal loan, you will need an asset to back up the loan. It will then become a collateral for your loan in cases where you fail to repay as per the agreement.

Unsecured Loans

These are loans offered by any financial institution or bank. You will make payments until the account becomes fully paid.

But take note that these type of loans can have fees added on the borrowed amount.

But, they don’t require an asset or any kind of collateral to apply for a loan.

Payday Loans

The interest rate for this type of loans is higher compared to some personal loans.

The payment requirement also includes returning the money when the next paycheck of the borrower arrives.

It is a short-term personal loan which is suitable for emergencies and expenses that are unexpected.

Peer-to-Peer Lending

Peer-to-peer lending doesn’t require a middleman such as a bank or any financial institution in order to apply for a loan. You can borrow money from the lender along with a repayment agreement which includes the interest rate.

It is similar to how crowdfunding works. They offer unsecured loans to people who can’t apply for loans in a traditional way.

Borrow from Friends and the Family

This is a bit similar to peer-to-peer lending except that the lender is associated with the borrower on a personal level.

But you may have to treat it same as a traditional loan with the signed agreement in a paper.

This will prevent any misunderstanding between you and your friend or relative. The agreement will also include the interest rate and the loan terms.

Personal Loans Online

Another way how to get a personal loan with bad credit are personal loans offered online.

If you need to apply for a loan quick and fast, this can be one of your options.

They can decide on your loan quickly and send the funds to your account in a matter of days or even hours.

Plus, there is no application fee involved or a penalty for pre-payment.

Step 6: Identify If It’s a Scam

It is very important to check every lender you encounter may it be online or not most especially the no credit check personal loans.

Also, check with the Department of Financial Regulation or Department of Banking if the lender is registered to conduct business within your state.

For complaints on lenders filed by clients with poor credit, you can also check with the Better Business Bureau.

Step 7: Proceed with the Application for Bad Credit

In cases where lenders denied most of your applications because of a bad credit, you can try asking a lender to have a face-to-face interview with you to prove them you’re credit-worthy.

Once you’re able to schedule an interview, you may prepare all the documents needed.

List of Documents

  • List of all your assets (property, car, home) and how you currently pay them
  • Proof that you’re paying child support or receiving alimony (if any)
  • List of credit cards, medical bills, and all unsecured debts
  • Checking, CDs, and savings bank statements
  • Tax returns and the last two years of your W-2s and 1099 forms
  • Information about your employment history which includes your pay stubs and salary

One of the proofs to show them you are a good risk are the long years of residence in a city or a house.

Another is a longer employment record with an employer.

They may not require all these documents but they will all be a plus to demonstrate that you’re worthy of paying back the loan.

For more information about how to get a personal loan with bad credit, here’s a video from CNBC:

If you want to know more about how to get a personal loan with bad credit, it is best to conduct due diligence. Doing more research on loans for poor credit will allow you to gather as much essential information as you can.

You may also try other alternatives such as rebuilding your credit then start building up your credit scores. Always keep in mind that a better credit history upon credit checking will result in a more positive outcome.

Do you have other recommendations how to get a personal loan with bad credit? Please share your suggestions in the comments section below.

Up Next: Best Credit Cards For Bad Credit 

Amy Blatterfein

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Amy Blatterfein

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