How to Get a Loan with Bad Credit
A personal loan can give you relief when you need money quickly. Those with good credit will be rewarded with lower interest rates and more loan offers. If you have a bad credit score, it can be challenging to find a personal loan, but with a little bit of research, you can secure one too.
Whether you need a personal loan to pay for a major expense or an unexpected bill, below are four steps to help you get a loan with poor credit.
Step No. 1: Review your credit report
Assess your credit report to help determine if you may qualify for certain loans. It’s also important to check your credit report for errors before you apply for a loan. Inaccuracies can lower your credit score and hurt you during the application process.
Many lenders will review your credit history to determine if you qualify for a loan. They’ll examine it to help determine the conditions of the loan, loan amount, and interest rates. If you have a low credit score, your loan will typically have a higher interest rate and be a smaller amount.
Step No. 2: Research lenders and loan options
Ensure you get the best personal loan for you by comparing lenders, from online lenders to credit unions.
Lenders have different ways to assess your creditworthiness and will have their own credit score requirements. Many lenders will use major credit bureaus, such as Experian, FICO, Equifax, and TransUnion, to review your credit history.
Some lenders will prequalify you for a loan with a soft credit check, which won’t hurt your credit. Prequalifying for a loan isn’t a promise that you will qualify if you apply, but it can provide useful insight into the different loan products.
No two lenders are the same, but most personal loans are either unsecured or secured loans. Secured loans require collateral, such as a home, car, or other valuable possession. The asset you put up for collateral can be repossessed if you’re unable to make a payment.
Unsecured loans are determined based on your creditworthiness. A credit card is an example of an unsecured loan. Unsecured loans usually have higher interest rates than secured loans because they aren’t secured with collateral.
Step No. 3: Gather your personal information
Once you’ve reviewed lenders and loans, collect your identifying information to prepare for filling out the loan application.
Most financial institutions will ask for the following:
- Annual income
- The name of your employer
- Social Security number
- Driver’s license number
- Outstanding debts
- Typical household expenses
- If you rent or own your home
Step No. 4: Choose the best loan for you
Choose one loan and start by only applying for that one. Applying for many loans in a short period of time can hurt your credit score. It can also decrease your chances of approval and increase your interest rates.
Carefully review the loan terms and consider features such as funding speed and the cost of the loan.
Step No. 5: Consider improving your credit score before you apply
For lower interest rates and better lender options, improve your credit before you apply for a loan. Improving your credit score is a slow process. If you need money in a crunch, there may not be enough time for you to improve your score.
Review your credit report to identify areas for improvement before you apply for a loan to boost your credit score. Paying your bills on time and reducing your debts can help you receive better loan conditions and more favorable rates.
Avoid late payments
Lenders consider past payment history to determine future payment performance. When you pay late or less than the amount due, it can negatively affect your credit score.
Reduce your debts
Having a high credit utilization — the ratio between your debt to credit limit — influences your credit score. Decrease your outstanding debts before applying to a loan to improve your score for a better loan rate.