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In the United States, 18 percent of Americans have a below optimal credit score. According to Experian, this is considered any FICO score between 580 and 669. Without decent credit, it can be difficult to obtain a personal loan in times of financial distress.
So, what are the key steps to knowing how to get a personal loan with bad credit?
How to Get a Personal Loan With Bad Credit
Below are a few tips you can use to help you get a loan with bad credit. Regardless of your personal credit score, these tips help you get approved at a cheaper rate.
Address Your Credit Score
The first step you should take when addressing personal loans for bad credit is to get a copy of your credit score report. This helps you see what the lender sees and help you understand why you have a low score.
Looking at this report also helps you address the issue before it reaches the lender.
Lenders focus on your debt-to-income (DTI) score. This score outlines the percentage of your income that goes towards debt payments. Ideally, you will need a score below 50 percent to qualify.
Unless you need an urgent loan, it is recommended that you pay out your debt before you apply.
Add a Co-Signer
An alternative way to get bad credit loans with guaranteed approval is by choosing a lender that allows co-signers. Your co-signer can be a family member or friend with excellent credit.
Your co-signer is responsible for paying any loans you cannot. For this reason, you should carefully consider who you choose as your co-signer.
A secured personal loan can also be beneficial to those who have bad credit. These loans allow you to put up personal possessions as collateral for missed payments, such as your car.
By considering these loans, you have a better chance at qualifying for better rates.
Devise a Repayment Plan
Another tip when applying for personal loans is to choose a lender that reports loans to the credit bureau. These reports can help you build credit and get a lower rate when applying for credit cards in the future.
Keep in mind that lenders report on-time and late payments. The fate of your credit score relies on how frequently you make payments on-time.
Additionally, it would help if you continuously asked your payment terms to plan your monthly payments.
Lastly, you should continue to make your payments as soon as possible- even if they are late. Lenders do not always immediately report late payments, so this gives you the chance to make a payment before the report is filed.
Before settling on a lender, you should compare services from online lenders, your bank, and credit union. Review each turn to decide which best suits your situation based on their rates and features.
Online services can provide prequalification of soft-credit checks. These allow you to see your rate without hurting your credit score.
Also, online lenders can sometimes fund a loan on the same day. To take a look at some of your options, feel free to explore your options online.
Your local bank may take up to a week to produce the same funds. Banks may also require you to submit a formal application when checking your credit score. This will result in a temporary dip in your credit score.
The type of lender you choose will depend entirely on your personal preference and reason for poor credit.
Getting Your Loans
When tackling ‘how to get a personal loan with bad credit,’ it is highly recommended that you start with these tips. With the right approach, you can successfully receive loans to help in emergencies.
For more information on personal financing, check out the business section of our blog.
Thank you for reading!