Sometimes you know when you are going to need a loan. When buying a house or a car, chances are that you will finance that purchase with a loan. In other cases, you may face a large, unexpected expense that you aren’t able to cover with your savings. Those out-of-the-blue expenses may require you to take out a personal loan.
The benefit of a personal loan is that it enables you to access a lump sum of cash that you can then pay back to the lender in monthly installments. Here’s the catch: most personal loans require a credit assessment where the lender analyzes your credit report and history to gauge your ability to repay the loan. If you have bad credit, it could be difficult to find a lender who will work with you and provide you with a decent interest rate.
That said, some lenders specialize in personal loans for people who have bad credit. We’ll explore considerations for getting a personal loan with bad credit.
Go the Untraditional Route
Most traditional banks either do not offer personal loans or only offer them to borrowers who meet very stringent criteria. Those with bad credit are better off applying for a personal loan with a credit union or an online lender.
Regardless of where you choose to get your loan from, be sure to do your homework. Many banks and credit unions allow online applications, which can yield faster approval and funding, but you’ll want to make sure you take your time to find the best deal for your needs.
Improve Your Credit
Sometimes people need personal loans to help with an emergency that must be handled immediately. If you have more time to sift through different options, it might make sense to take that time to work at improving your credit score.
Making on-time payments for your credit card and other debt is a surefire way to improve your credit score. Maintaining a credit utilization (the portion of your credit limit that you’re using at any given time) of 30% or less is another way to score a boost to your credit.
Once it is time to apply for a personal loan, you may be able to pay a smaller origination fee or no fee at all if you manage to improve your credit score. A better credit score can also earn you a better personal loan interest rate, which can help you save significant money over the life of the loan.
Get Prequalified for a Personal Loan
Many lenders allow you to get prequalified for a personal loan before you apply for the loan. Be sure to confirm in the fine print that you’re doing a prequalification (you might see wording like “see your offer” or language that indicates your credit won’t be affected), which is a soft inquiry. This enables lenders to look at your credit report without dinging your credit score.
Once you’re successfully prequalified, you’ll be able to see your initial loan offers. Getting prequalified via multiple lenders allows you to compare costs and interest rates without harming your credit.
Having bad credit doesn’t necessarily mean you won’t be able to get a personal loan. Following the tips above should position you well to find a financial solution that works for your unique situation. Remember, when you make on-time loan payments, you’re also contributing positively to your credit by improving your repayment history.