Half of all homes in America are struggling financially.
It is not uncommon to have bad credit. It can be a result of missed monthly payments, late payments, or bankruptcy. For those who are looking for an answer to the question “How do I get a loan with bad credit?” this blog post will help you find one! In this complete guide, we’ll discuss how to qualify for a loan despite having poor credit and what type of loans are available.
How can someone with bad credit secure a personal loan? Read on to find out!
What Is a Personal Loan?
What is a personal loan, exactly?
Personal loans are a type of lending agreement that generally allows the borrower to borrow money from an entity, such as a bank or credit union. The average credit score in America rests right around 710, and that’s a good number for securing financing. However, you can still get a loan when you have a low credit score, like 550 and even worse.
What are some advantages and disadvantages of obtaining a secured loan? The biggest advantage of borrowing money in this way is how quickly you can get it. A lot of people need cash right away and have no other option but to turn to their local bank branch or log on online to find loans available with bad credit. If they don’t live near one, then there are plenty of options out there that make meeting up face-to-face unnecessary.
Downside Of Bad Credit Loans
If you have a low credit score and decide to move forward with getting a loan, you’ll want to know all of the drawbacks. The first thing to consider is that the interest rates from bad credit lenders are typically higher than the interest rates from a traditional bank. This is because borrowers with bad credit history have a greater risk of defaulting on their loan, and banks take this into account when they set these loans’ terms.
High interest rates will accumulate over time and result in high payments. Another problem may be how much money can be borrowed or paid back as installments, as it could vary depending on the lender. There may be strict limits to how much can be borrowed in total or as installments. The other problem would be that if your loans come from interest charges rather than being repaid at the end, this increases monthly bills because of fees levied by lenders who want to recoup their losses.
There’s no shame in borrowing money from friends and family members either on a short-term basis (such as Christmas) or longer terms loans just so you can get through tough times financially without having to resort to high interest rates.
Why Do Lenders Work With Bad Credit?
Why are there so many lenders available that can help people even if you have bad credit? It’s because the lending company considers their income as well as other factors when determining whether or not someone qualifies for an unsecured loan.
You may be wondering why these companies would extend such loans, but it’s quite straightforward. Most of them charge higher interest rates and fees than traditional banks do on secured loans. If you’re careful about your borrowing habits after taking out the money, this could end up saving you in total costs over time. However, you’ll have to make sure you don’t borrow more than what was allocated in advance so that every payment goes towards paying off the debt.
How to Qualify for Financing With Bad Credit
Mortgage lenders and other types of creditors use a variety of different measures to determine whether or not you qualify for financing. The most common factors they look at are your credit score, the amount of debt you have as compared to the equity in your home (your down payment), current employment status, income stability, and how much cash assets you own.
If there is even one major red flag on any measure that would disqualify you from getting approval, it’s unlikely that anyone will be willing to lend money to help you buy a house. But if all five points are very good-to-excellent then chances increase greatly that someone might give you funding with bad credit when they review what seems like an otherwise stable prospect.
How can you improve your chances of approval? Apply for a loan with an established lender like one from the big banks or credit unions. This is your best chance of getting approved since these lenders are sometimes more lenient when it comes to lending money.
Best Types of Collateral
Next, on our list of tips for how to get a personal loan, let’s talk collateral. If you have any other collateral besides savings, try using that as well – such as jewelry or property in case they need something worth taking back if things don’t go according to plan. Some good options might be putting up a car title, life insurance policy, deed to the land, and so on.
Overall, the best types of collateral for a loan are real estate and vehicles. Cars make for great collateral since they have values of $40,000 on average. The individual should have both to qualify. Other forms of collateral that work well include stocks, bonds, mutual funds, retirement accounts, or business assets such as inventory or equipment. A person might also be able to use items like jewelry, watches, and artwork as long as it is valued at more than what you need from the loan amount being borrowed.
Don’t Finance for These Scenarios
More money means fewer problems, right? Not necessarily. You should only apply for a loan if you have to, or your problems will multiply. For example, you should avoid taking out financing for situations where you are losing your income completely. For instance, let’s say you lose your job. You have bills coming up, and need a way to pay. Should you get a loan? Nope. Getting a loan will just be a way of delaying the inevitable, while also making the financial situation worse.
If there’s an emergency and you need cash, borrow from family or friends before turning to a lender. You want to avoid putting yourself into more debt than you already are because it can be difficult to get back out. The same goes for medical emergencies–keep your money saved up so that if something happens, you’ll have funds available without having to take on additional loans.
Avoid Obvious Impulse Buys
Never take out a loan for an item you want, but don’t need. We know it’s tempting, but you’ll only end up paying more in the long run.
Even if you have great credit, loans aren’t the right choice for financing wants. It might not seem like much at first, but interest rates on loans are high–even when they come from an institution such as your bank.
If you do decide to take out a loan, figure out how much time is needed before deciding what type of loan would best suit your needs. Ask the lender, what are the short-term or low-interest rates? The longer the term of the loan (the less money paid back each month), this usually means lower the monthly payments with higher total interest rates.
Don’t Mix Business With Personal
Next, avoid getting personal loans for business reasons. If you want to get a loan for your business, make sure it’s through the right channels.
If you’re thinking about getting a personal loan to cover business expenses like equipment or inventory, stop that thought in its tracks and go back to what you were doing before. Personal loans are not meant for these types of things because they have interest rates attached which will drive up costs at an exponential rate. You’ll end up with more debt than when you started if this happens.
Personal loans can be helpful in other ways though so don’t feel discouraged from considering them as long as they aren’t used for something inappropriate!
Find the Right Lenders
Hold out for the best place to get a personal loan. For instance, you’ll want to find a lender like Plenti, that specializes in fair loans, even if you have bad credit. Next, the loan application timeline is a look at the process you go through when applying for a loan. You start with an initial conversation with your prospective lender, where they will ask questions to determine how much of a risk you are and if it’s worth giving you money.
After that, there may be some paperwork involved. You might wind up getting copies of your pay stubs or filling out financial documents like W-11s to verify income and employment information. When all that is finished, the lender reviews everything and will either make an offer on the spot or ask for more information. You then have two options: accept their counteroffer (or final offer) or decline it in search of other offers.
Loan Application Timeline
After applying, how long will you have to wait to receive the loan money?
You can apply online and if you have your information, it should take about 45 minutes to complete. Next, the lender will contact you with loan terms. They have up to 30 days from when they receive all of the requested documents for a decision on eligibility and rates offered.
The underwriter at the bank then reviews your creditworthiness after this waiting period before approving or declining their offer. Approved applicants can expect funds as soon as 24 hours later! The entire process may take between three weeks and six months depending on the bank’s policies but most often it only takes one week on average.
Find Trustworthy Financing
If you’re in a situation where you need money, but don’t have the cash on hand to pay for something, there are ways around it. Be proactive and think about what your options are before taking out an expensive loan. Reach out to friends or family members today, if possible. If not, consider using collateral like a personal item (anything worth at least $500) as security instead of borrowing from someone else.
As always make sure the lending company can help with credit issues such as fair rates for a personal loan with bad credit! For more advice, read another article.