Personal Loans for Bad Credit
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When you are considering applying for a personal loan, you inevitably wonder about the state of your credit scores. Good credit scores can seem like the ultimate thing that determines your financial health.
In reality, the statistics of Americans who have credit scores below 600 is nearly about a third of the population. According to one of the credit bureaus, Experian, it is almost a common thing to have a bad credit score. A report published in credit.com reveals that up to 68 million people in the United States have bad credit.
If you have a credit history that is less than ideal, it can be a relief to know that there are similar people everywhere. And a huge chunk of these individuals are applying for personal loans.
This post on personal loans for bad credit is for you if you have questions regarding this highly discussed topic.
Best Personal Loans for Bad Credit
What is a personal loan for bad credit?
Personal loan for bad credit is nothing but personal loans that are loaned to those who do not have good credit. If you are not sure about the dynamics of bad credit, anything below the 600-mark is considered a bad credit score rating.
There a number of institutions, both banking and non-banking, that offers personal loan for those who have bad credit. It goes without saying that if your credit history is below the mark, the interest rates will be higher. But, this does not deter the fact that a lot of people find solutions with a personal loan.
Although lenders can be a bit tight about lending you a large sum of money, the minimum amount you can borrow with bad credit starts from around $1000. You might be able to push it to $50,000, but this will depend on how bad your credit score is.
Most of the lenders do not require borrowers to furnish a lot of documents to get the loan application approved. This gives the borrowers more confidence to apply for a personal loan even with bad credit.
Another feature that makes personal loans much sought after is that they get approved almost instantly. Most lenders will make it their mission to complete the entire process as fast as possible. It is not uncommon for personal loans to get approved on the same day it is applied.
What are the requirements for personal loans with bad credit?
Personal loans with bad credit have similar requirements with many other types of personal loans, with the exception of good credit.
- Minimum age of 18, but 21 is given preference
- Tax identification number or a social security number
- Monthly income of $800, or recommended $2000, with valid documents
- A valid checking account with a bank
- A permanent resident or a citizen of the US
- An active phone number
What are the benefits of personal loans for bad credit?
Personal loans for bad credit have a number of benefits, which make them very popular. These include:
- Multiple ways to access it.
A number of banks, as well as other non-banking financial institutions, offer personal loans for bad credit. Most of them operate online as well as with offline offices. This makes it easy for anyone to have access to them.Other lesser-known entities that provide personal loans for those who have bad credit are credit unions. Credit unions have an added advantage as they also offer an alternative to personal loans in addition to the loans.
- No requirement for good credit.
Perhaps this is the most important reason that appeals to those who do not have good credit. Several institutions are willing to borrow their money despite your average credit history. In fact, some institutions cater exclusively to those who have poor credit scores.In a situation where you feel tanked, and you are in no position to improve your credit report, this no requirement for good credit can be heaven-sent.
- Reasonable interest rates.
It is a known fact that all loans come with interest rates. Otherwise, lending institutions will no longer be in business. Personal loans for bad credit also come with interest rates, but they are reasonable. In comparison to a credit card or a payday loan interest, personal loan interest rates are not very high.The interest rates for personal loans in Q3 of 2019 were found to be 10.36% for a 24-month loan. On the other hand, the interest rates for a credit card were found to be 16.97% on average
- Fixed monthly payments.Personal loans have a certain amount that you are required to repay every month. Since these monthly payments are fixed, you get an idea of how much you have to pay at the end of each month. You also get the flexibility to manage your finances as well.
- Versatility with its use.Personal loans are also the most versatile among all other types of loans. Unlike a mortgage loan that is specific to a home or a car loan that explicitly covers your car, personal loans can be used in a number of ways. In this sense, personal loans give you the best mileage.
Some of the top ways to use personal loans are home renovations, paying for a holiday, medical emergencies, a car repair, and consolidating your bills.
- Flexibility with loan amount and repayment terms.
Another fantastic benefit of a personal loan is that you have the option to choose the amount of loan. In many cases, you may also be able to pick the loan with a repayment term that fits your preference.Although this may be slightly affected by the rating of your credit score, it gives you a lot more flexibility. This feature also allows you to breathe while working towards paying off your debts a lot quicker.
What are the disadvantages of personal loans for bad credit?
Personal loans for credit also come with a number of disadvantages which include:
- Penalty for early payment.
With other types of loans, if you can make your payments, it is an advantage. This is not the case with personal loans. You can get penalized for repayment before the due date. The percentage of the penalty differs from one lender to the other.
- The risk with hidden fees.
Personal loans are not known for their high interest rates. However, there is a risk of hidden fees that are involved. It can be in the form of high APR or origination fees in most cases. Some lenders have origination fees that are as high as 6%, which can significantly add to the overall cost of the loan.
- Risk of scammers.
The business of personal lending loans for bad credit is a flourishing one. It makes you very vulnerable to scams.<The easiest way to spot a scamming lender is if you are asked to furnish details of a prepaid debit card. You can also check out whether the lender is certified with the Better Business Bureau or not.
Alternatives to personal loans for bad credit
If you would like to consider alternatives to personal loans for bad credit, here are our top choices:
- Payday loans – These come with high interest rates, but they are relatively easy to secure and have fewer requirements.
- Credit card – Using credit cards may cost less than taking out a personal loan.
- Installment loan – Installment loans can come with lower interest rates than a personal loan in most cases. The longer repayment terms can also give you more flexibility in repaying the loans.
Things to consider before applying for a personal loan for bad credit
Before you apply for a personal loan for bad credit, here are some crucial things you need to consider:
- Get quotes from multiple lenders, both online and offline.
This will help you get the best rates as well as the repayment terms. It also pays to check whether the lender performs a soft or hard inquiry at this stage. If the lender performs a hard inquiry, it can lower your credit score even lower. So opt for a lender who makes a soft inquiry.
- Read and understand the terms thoroughly.
Interest rates can look low on paper, but what about the APR or Annual Percentage Rate? Are there origination fees too? These can add up to the overall amount that you end up paying.
- Personal loans are not a revolving credit facility.
It is not a revolving credit facility that you can switch on every few months. It pays to be a responsible borrower and understand the real use of personal loans.
- Understand that personal loans for bad credit comes with risks.
If you are not able to repay on time, it can go into a collection, which can be disastrous for your credit score. Additionally, you risk being sued by the lender.
What can you do if you are denied a loan?
There are times when your loan application will get rejected. This is notwithstanding the fact that lenders will do everything in their power to give you the loan. In such a case, here are some things you can do:
- Find out the reason for the loan rejection.
In most cases, it could be bad credit, insufficient income, or lack of required documents. Once you know why your loan application was turned down, you can work towards rectifying it.
- Make a down payment.
Making a down payment of up to 20% on a home or a car can sometimes have a positive impression on the lenders.
- Increase your income source.
This is so much easier said, but increasing your income source can be a great thing when it concerns your loan application approval.
- Apply with another lender.
If you fulfilled all the requirements and still get rejected, it is time to consider another lender’s services.
How to check your credit score
To check your credit score, there are a number of ways. These include:
- Use your social security number.
Every person in the US who has a social security number can view their credit report once in a year without paying any fee. Find out more here, but it does not include your score.
- Contact your service providers.
Many Banks and credit card companies have free monitoring services where you can check your credit score rating.
- Online websites.
Some websites, such as credit.com, allow users to check their credit scores without any charges.
- FICO score.
Here, you are required to pay some amount but it is the figure that most companies refer to where your loan application is concerned.
- Check your FICO score at MyFICO.
How do you improve your credit score?
Reviving a poor credit score can look impossible. Fortunately, there are several ways you can boost them.
- Don’t delay your payments.
This is basic but very effective in improving your credit score. If you know that your lender reports to the credit bureaus, find out the date when they file the report. Then make the payments before that date.
- Consolidate your debts into a single card.
When you consolidate your debt, you will also be able to bring your debts below the 30% range, which can boost your credit report significantly.
- Make substantive payments.
Whenever possible, make substantive payments with your credit cards. This will reflect on your debt-income ratio and also improve your credit score.
- Diversify your credit cards mix.
If you have a single credit card, get a couple more. Include a secured credit card as well. Consolidate the debts into one and keep the remaining active with a zero balance.
Summary – Personal loans for bad credit
Getting stuck with a bad credit history can seem like the end of your financial independence. But fortunately, there are so many sources where you can get a personal loan for bad credit.
If you think you need a breather with a personal loan, it is a good choice. They come with advantages that cannot be said about other types of loans. However, you need to consider your needs and choose the loan amount as well as the repayment terms that you feel capable of handling.