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Your quest to get a personal loan with a bad credit score has led you here. Before going any further, arm yourself with basic knowledge about personal loans and how your low credit score may affect the process.
You can take out a personal loan for any reason and use the money for whatever personal reason, hence the name. Usually, you then have monthly payments until the loan (plus interest) is paid back in full. These monthly installments are written in your loan agreement. The APR on personal loans can range from 6% all the way up to 36%.
There are many good reasons why you may need to take out a personal loan. Some examples include paying for a wedding, financing an important purchase, and consolidating credit card debt.
Sometimes, you can even use a personal loan to improve your credit. How? Well, there are a few different effects a personal loan can have on your credit report. One, it will improve your credit mix by adding a different type of account to your report. Two, it will improve your credit utilization ratio by showing a larger total credit limit. But be careful – unless you make all of your payments on time, these positives will be canceled out by the negative of making late payments.
If improving your credit is your goal, there’s a simple way that you can make a loan to yourself instead of taking out a personal loan. Self Lender enables you to create a “loan” with your own money, and build your credit scores by paying yourself back in monthly installments. The money you receive is used to open a CD (Certificate of Deposit) for a small investment that earns interest over time. This way, you can build savings and build credit at the same time.
If you’re trying to avoid or get out of debt, personal loans are often not your friend. They can have high interest rates and, especially if you already have bad credit, can be very risky if you can’t really afford to repay the debt. Before taking that leap, here are a few things you need to know:
Any kind of loan is difficult to qualify for when you have a poor credit score. Personal loans are no different. If your score is in the 500s or even the low 600s, expect high interest rates if you can qualify for a personal loan at all.
Trying to get a personal loan with a low credit score can feel like an uphill battle. It’s hard to qualify for any kind of loan if your credit score is below 580 because with a credit score that low, lenders don’t trust you to repay the loan. So, what can you do? If you really need that money, there are a few methods you can use to overcome the effects of your poor credit and get the personal loan you need.
However, waiting and working toward a good credit score may get you a better interest rate and save you money in the long run. Start by taking a look at your credit report and finding out where you can improve. Even if it takes a while, you’ll be surprised how many more opportunities are open to you when you have a better credit score.
These assets could include home equity, your retirement account, savings, or even your car. A secured loan is nothing to take lightly. You risk losing an important asset if you can’t pay it back. If you do end up taking this route, be very careful about paying the whole loan amount and making payments on time.
Basically, when someone cosigns on a loan, they are agreeing to pay off the money you borrow if you can’t repay it. A close friend or family member can cosign with you, or they can help you out with Method #4…
Just make sure you make a plan to pay back what they gave you. Map everything out, from when payments are due to how much each payment will be to the length of the loan terms. Not repaying a personal loan can damage your finances, but failing to repay a friend or family member can damage your relationships.
There’s a chance that if you have a frank conversation with them about the state of your credit and your ability to pay back the personal loan, they might reconsider their initial rejection. Additionally, you may be able to prove your creditworthiness in other ways. Bank statements, W-2’s, a list of your assets or unsecured debts, or even a statement from your savings account or another bank account could help you prove to lenders that they can trust you to pay them back.
If you can’t qualify for a traditional loan, you can work with a different lender that may qualify you. They could get you a custom set of loan offers specifically designed for people with bad credit based on your current financial situation. Don’t forget to check with online lenders, as well. They’re usually more lenient.
Article last modified on May 16, 2019. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How to Get a Personal Loan with Bad Credit - AMP.