Are you having trouble finding personal loans because of your low credit score? Banks want the best grades from borrowers, especially during economic downturns. Thankfully, some provide options for those with bad credit. Check out the following personal loans, and see how you could improve your credit score.
We’ll break down the basics of credit scores and their effects on daily life. Then, we’ll check out the many uses of personal loans. Afterward, we’ll go through the numerous types of personal loans you could take out. More importantly, we’ll discuss their benefits and risks and how they could help you raise your credit score.
Credit scores are meant to help lenders find borrowers who could repay their loans on time. That three-digit number on your credit report could make your life easy or hard. Debt is a tool, and it could provide money for short-term needs. Even better, personal loans help you improve your long-term credit health!
What is a credit score?
Everything you do with your checking account becomes part of your credit history. Each on-time and late payment goes on that record.
All this information is sent to the big credit bureaus. They check your history and grade it based on their assessment. That appears as the three-digit number we know as the credit score.
FICO scores are the most common credit ratings, ranging from 300 to 850. You get a high score if you pay on time. Otherwise, you get a poor credit score.
In other words, it rates how good you are with paying debts. When people borrow something, they should return it, right? The same is true for banks.
Banks receive this info and take it into account during a loan application process. Moreover, they could check how you use your bank accounts.
After checking these details, they decide whether a loan is approved or not. What’s more, it determines your loan terms, such as interest rate and loan limit.
Effects of a bad credit score
Credit scores aren’t just crucial for getting personal loans, though. It affects your access to goods and services. For example, a good credit score means the best deals for an auto loan.
It’s challenging to get home loans for bad credit. If you need a private student loan, you should have a good credit rating too. Applying for a new credit card requires your credit score as well.
Believe it or not, you also need it to land a job. You get lousy credit by failing to repay your debts on time. It may show a lack of responsibility, so employers might be reluctant to hire you.
You earn good credit by paying debts on time. It somewhat shows that you’re responsible, so employers might be more eager to hire you.
What are personal loans?
Simply called loans, personal loans give you money now that you must pay later. People usually get them from banks, but you could get them from other sources.
As we said, your credit score is one of the main criteria that lenders check. That’s why it’s tough to get a loan for poor credit. Still, you could find more lenient lenders if you search hard enough.
You could use a majority of personal loans for various purposes. Once you get the money, you may spend it on anything your wish.
Although, there are loans that you’re only allowed to use for a particular purpose. For instance, you may only spend home improvement loans for renovating your house.
Of course, you must repay personal loans on time. Depending on your credit score, your repayment terms could make that easy or hard.
Personal loans for bad credit
You could still borrow money if you have poor credit. Some lenders are still willing to lend funds. Though, they typically have worse terms and conditions than traditional loans.
Read the fine print before you sign a loan. Make sure you understand the terms and conditions. If it doesn’t fit your situation, check around for other lenders.
Learn the types of personal loans available. You could find most of these in your bank. Alternatively, you could check online lenders for these loans.
Unsecured loans
These are the typical personal loans you’ll find at a bank. You submit the requirements and fill out some documents. After a few business days, you may receive your funds.
Unsecured personal loans often have stringent requirements. Your bank would probably require a high credit score and other criteria. You may find it challenging to apply for these loans.
Still, you may find lenders that offer unsecured loans. You’ll probably receive the worst terms and conditions, though. The loan might charge an immense amount every month.
Secured loans
You may need collateral for some loans. It could be an amount of money you provide upfront. Otherwise, they could seize assets like your car or your house if you don’t pay on time.
The collateral assures lenders that they get something in case you can’t repay them. Your money or possessions could compensate for your poor credit score.
It’s your best choice if you need personal loans for bad credit. You may get access to loan terms and conditions otherwise inaccessible for unsecured loans.
Credit union loans
Banks aren’t the only financial institutions that provide loans. Credit unions also lend money, and they might have better options.
Banks are for-profit institutions, while credit unions are nonprofit cooperatives. They have smaller operations than banks, but they provide similar services.
You may find lower costs and require membership for a small fee. Also, they can’t charge an interest rate above 18%.
Credit unions may be reserved for a particular profession. For example, military veterans may inquire at the Navy Federal Credit Union. Teachers may check the SchoolsFirst Credit Union.
Still, you have to explore as many options as possible. You’ll eventually find a lender that provides bad credit loans.
Peer-to-peer loans
The internet gives us access to a plethora of information, products, and services for free. Since 2005, peer-to-peer lending has been providing lenient alternatives to bank loans.
Otherwise known as P2P lending, it lets people lend and borrow from each other online. Visit their websites, and you’ll find lots of loan listings.
You may post a listing by signing up. Place the amount you need and how you’ll use it. Then, investors will evaluate your listing and decide if they’re willing to lend some money.
These websites provide personal loans with more lenient terms than those from banks. That’s why it could be a good place for bad credit loans.
Online loans
You could find loans on the internet, but what if the bank is entirely online? Personal loan lenders function similarly to traditional banks, save for a brick-and-mortar office!
What’s more, online lenders work much faster than most banks. They could process loans within minutes. Many don’t even charge prepayment penalties nor application fees.
Some of them don’t even check FICO scores since they have a separate rating system. This is why they could give loans for bad credit. Search online to review your options.
Cash advance
You could take out the remaining balance on your credit card as a loan. This is also known as a cash advance. If you need money quickly, this might be for you.
However, you should think carefully before using this option. If you have an unsecured credit card, you’ll probably get a high-interest rate.
If you’re not careful, this could sink you further into debt. That interest rate could make your debt much more significant than you could handle. Still, it’s a personal loan option if you have no other options.
Home equity loans
There’s a personal loan option exclusive to homeowners. They get equity, the difference between their home’s appraised value and the amount of mortgage they’ve paid.
They could borrow that amount as home equity loans. You receive a lump sum that you have to repay within a set period. However, this designates your home as collateral.
If you fail to repay this personal loan, you risk foreclosure. Plan carefully before borrowing money from your home equity.
Home equity line-of-credit (HELOC)
Your home equity could function as a credit card. Instead of a large amount of money, you could borrow a bit for small purchases.
A home equity line of credit or HELOC could have a fixed interest rate or a variable interest rate. The former doesn’t change while the latter fluctuates depending on economic conditions.
It’s hard to get a fixed rate if you have bad credit. You may have better chances of getting a variable rate. Depending on the economy, your monthly payments may increase or decrease!
Moreover, you should control your spending when using a HELOC. You also risk foreclosure if you don’t repay it. Go overboard with spending, and you may lose your home.
How to build credit
These loans for bad credit don’t just give you money when you’re in a bind. They could help you improve your credit. Repay these on time, and you’ll eventually get a higher credit score.
Another way to improve credit is by eliminating debts. Fortunately, you could request services that make it much more manageable.
For instance, debt consolidation combines your debts into one with a lower interest rate. It could remove the hassle of handling several unpaid balances.
Also, debt settlement could reduce your debt. A debt relief agency could negotiate on your behalf for a lower balance. However, be wary of the risks involved.
You could request assistance from credit counseling agencies. They provide debt management plans and teach valuable money management skills.
Final thoughts
There are several personal loans for bad credit available. You could find them on the internet. No matter your choice, make sure you read the terms and conditions.
Note that you might have to spend a bit on loan applications. For example, banks usually charge origination fees from borrowers.
More importantly, learn proper personal finance. Manage your money wisely, and you may avoid relying on loans. This is the key to long-term financial stability.
Learn more about personal loans for poor credit
What are personal loans?
These are borrowed funds that people use for various purposes. Some have a specific use, like home improvement loans. You need a good credit score for most of these.
What’s the excellent credit score for personal loans?
A good credit score is around 670. However, this could change depending on your lender. Note that it’s not the only criteria checked in loan applications.
Can I get personal loans with bad credit?
Yes, you could find brick-and-mortar and online lenders that provide bad credit loans. Note that the loan terms and conditions might be worse than the ones from traditional lenders.
