This post will explore how to get personal loans for bad credit. So, if you have bad credit that is not the end of the world. It just means you have a bad credit score and a poor credit history. Also, the reason you have a bad credit score is due to taking a loan in the past that you were unable to repay. In the lender’s world if your credit score is below 629, then you have a bad credit history.
Besides, your credit score is 3 numbers that lenders use to measure how fast you will repay them in case they lend you money by credit card or loan. Although it is important to have a good credit score rating to attract credit, however, you can still get a personal loan even when you have bad credit. In this post, you will know how they calculate a credit score, and who needs a bad credit loan and the options available for you to get personal loans for bad credit.
How do they calculate credit scores?
There are organizations that are set up for this purpose. You can have different credit scores depending on the method used to calculate it and who did it. The recognized models are the FICO score ranging from 300 – 850, Experian 330-830, Equifax 300-850, TransUnion 300-850 and Vantage score 501-990. And all these organizations use different algorithms to compute your credit score. here is the Calculation method.
However, they all share what makes the score either go up or down although the degree will differ. Most of them consider your payment history on the loans you collect, credit cards, and how much revolving credit you use. Also, how long you opened your accounts and how frequent you apply for credit, matters to them.
Who are those that need a bad credit loan?
These loans for bad credit are alternatives for those that have a bad credit score. Also, those with bad credit are usually unable to get a loan from traditional banks and some other financial institutions. And until they rebuild their credit history by improving their credit score, credit is difficult to get.
How do you get Personal loans for bad credit?
So if your credit history and score are poor, it is not impossible to get a loan. All you need is to consider the conditions various lenders have before they could approve a loan for you. If you meet their demands then you will get a loan. To help you to overcome the difficulties of getting a personal loan due to a bad credit score, follow these suggestions below.
Get a loan with a cosigner
If you take a consigning loan it means that another person that has a good credit score is standing behind you for the bank or the finance company to consider your loan request and grant it. The person is either your friend or family. This cosigner provides the lender with a level of assurance that you will likely pay back the loan if you are granted a new credit line.
This now increases your chances of getting a loan with bad credit history. Also, this cosigner shares the risk of the advance from the lender. The main thing you should consider is the cosigner’s creditworthiness and if you can tell the person your personal financial problems. If the cosigner is creditworthy the loan interest rates will be lower. Learn how to find a cosigner
Make use of your home equity
Another way to get personal loans for bad credit is to use the worth of your fixed assets like your home, car, as collateral. This will reduce the lender’s risk and ease some of the unfavorable circumstances that arise from having poor or bad credit. When you put up home equity as collateral this strengthens your case with the lender.
Because it means you are ready to risk losing your home to get the loan if you fail to repay the credit. Note, that the risk involved in giving your home equity as collateral may be grievous if you default. But if you are confident that you will repay the loan, then you may go ahead with it.
Take a secured loan
To get a secured homeowner loan you have to submit your home equity too. So home equity is a type of secured loan. In a secured loan, you use most of your fixed assets like cars, savings, stocks, boats, and your home, to improve your chances of securing a loan. This type of loan is secured because you have submitted titles to valuable fixed assets to the lender.
Also, if you give a lender your precious fixed assets title his risk is almost zero as long as your title covers the amount you are borrowing, and the chances of converting the fixed assets to cash are bright. So before taking a secured loan ask yourself if it is worth it considering the risk involved of losing your title to the lender if you default.
Find online lenders
Although many people prefer to borrow from the traditional lenders with brick and mortar presence, these days you can go online and get a loan. This option is another way on how to get personal loans for bad credit. There is competition to grant loans to people who have bad credit and even those without any credit history.
These lenders may give you better offers than the traditional lenders who would consider your record of bad credit history. These online lender’s conditions for giving you a loan, depend on whether you are educated and your employment history instead of relying on your credit history.
The reputation and length of these online lenders in business is as important as the low-interest rate that you are after. Also, some of the reputable lenders that could give you low-interest rates are Avant, Best Egg, and Earnest. So carry out earnest research to compare interest rates and their reputation.
Ask friends and Family
If a situation arises where you are unable to get a co-signer and you do not have home equity and enough fixed assets to pledge for a loan with bad credit, your next option is to ask your close friends and family. This is a hard thing to do but after presenting your case to them and they are convinced that you need the loan and that they could give it to you, take it.
They should also make the loan formal by stating the terms and conditions for giving you the credit. Just put the agreement in writing and sign off on the document and pay on time as agreed in the terms. If you fail to repay the loan on time, it will cause a scandal.
Explore Peer-to-Peer Lending
You could explore a peer to peer lending to get personal loans for bad credit. This is another form of lending that is just starting online. It is called peer to peer lending. Also, it is a lending platform where anyone can go and borrow money. But it is investors that provide the cash that this platform lends. That means people provide the money that you will borrow.
The truth is that individual lenders may be more traditional. And they would most likely lend to those with a good credit history. But they have to consider the online lenders who are competing with them. These online lenders are willing to take the risk and to lend to people with bad or no credit history.
The peer to peer lender and the borrower have to face a level of risk. So, research on the internet to find a reputable platform to get better loan terms that favors both parties. The visible peer to peer lending platforms is Lending Club, Peerform, Prosper Marketplace, and SoFi.
In this post, I showed how they calculate a credit score and those that need a bad credit loan. Also, you now have the six options available for you to get personal loans for bad credit. Try these methods though it looks like an impossible task. But as you can see, it is not impossible to get a personal loan with a bad credit score. Take action now and make sure you rebuild your credit by paying your bills on time.