Whenever you are searching for a fast way to obtain money for an urgent need, the temporary solution is a personal loan. However, it might not be so simple to get a loan: a lender wants to ascertain that you can repay the borrowed amount, along with interest. To determine this, the lending institution will look at a set of factors, among which a crucial one will be your credit score.
But what if this score is bad? Since a credit score is a measure of how risky you are as a borrower, the vast majority of lenders will set a minimum score requirement, based on to what extent they are disposed to accommodate that risk. Having a bad credit score can still you get qualified, especially thanks to the rise of online lenders alternative to banks, which usually have the most stringent conditions.
First, is your score actually “bad”? According to the FICO model, the most used one from personal loan servicers (90% of lenders according to the FICO itself), a bad credit score is anything below 669, and includes different subcategories:
This rating quantifies how good or bad you are at dealing with outstanding debts, and consider mostly the following financial areas: timing of payments, missed payments and financially negative events (e.g. bankruptcy), amount of debt owed, number of opened financial accounts, and length of the credit history.
It will be hard to find institutions allowing you to take a loan with a score that is below 500; moreover, many lenders will have a minimum requirement of 620, which is technically a fair credit.
When lenders are disposed to fund so-called “subprime borrowers” if you are one of these you will have to expect a loan with higher than standard interest rates, less money to borrow, and shorter repayment terms that you would get by having a good score. These conditions compensate for the greater risk the company is taking for giving you their money.
Lenders allowing a bad credit score will mostly look at your annual income, setting a minimum requirement for it; and the source of that income must be steady (e.g. certain jobs can’t be even considered) so that you are likely to repay in the years to come.
You will be able to take only a restricted amount: whereas with good to excellent credit you can obtain generally up to $100,000 from a personal loan, with bad credit in the poor and very poor ranges you might not go beyond the $10,000 threshold.
The key point: you can get a personal loan with bad credit, but it will come with a higher than standard rate, a narrower term, and/or a limited amount to borrow, along with possible fees. This means the cost of your loan will be greater than what a good-standing borrower may face. Lenders that specialize in loans for bad credit are the solution when you couldn’t qualify from a traditional company.
Personal loans are the most reliable option when you need money but having bad credit. However, there are a few alternatives that might better fit your need, especially if you are in a hurry, and couldn’t qualify otherwise. In fact, the following are meant to let barely everyone qualify because they carry the laxest requirements.
Lenders that make this option available don’t even look at your credit score, but rather at your income to determine your eligibility. But this should be only a last resort option, as the rates tend to be ridiculously high, even up to 300% and beyond. If you are unable to repay the loan by the deadline, it should be possible to extend your loan at the price of an extra fee.
As a point of reference, you may want to consider how much is an average personal loan rate: according to the official sources, as of October 2020, it was 9.41%, which is reasonable for good credit borrowers. With the overall range going from 6 to 36%, you would get a rate as closer to the high-end as your score is lower: the cost of your loan will be greater than what a good-standing borrower can get.
The percentage they refer to is known as APR: an APR is namely the annual percentage rate and includes some or all the fees that lenders might charge. An APR for a personal loan with bad credit is fixed, which means it won’t change through the duration of the loan.
Since there are several factors to determine your score, you may have bad credit because of missed payments in your credit history, too many pending debts, or a too-short report. Despite the reason, lenders accepting bad credit will look at other things: most importantly, they will consider your salary, source of income, and employment status. If you can document a substantial income and a steady job, this is your best move to get affordable rates and conditions for your loans.
Debt-to-income ratio is another important factor, and lenders want it not exceeding anywhere between 35 to 40%: in layman’s terms, you won’t be spending more than a certain percentage of your income in paying off pending debts (credit cards, auto loans, student loans, etc.).
To follow are some measures you can take to improve your chance to actually obtain a personal loan with bad credit, and with the best possible rate:
It is commonly advised to know your score before applying because it will make you save time and the hassle of applying with a lender only to find that your score isn’t enough. Every lender will eventually check it: many offer pre-qualifying applications, which we highly recommend: with a soft credit check, that doesn’t have an effect on the score, you will know if there is the likelihood to qualify, and for which rate, terms and amounts.
Then, you will proceed with a certain offer, and whatever lender will conduct a hard inquiry, in order to assign you the final rate (this will necessarily impact the score, decreasing it by up to five points).
Today, you can get a personal loan with bad credit both from traditional lenders, such as banks and credit unions, and online alternative companies, which often offer advantageous and more flexible options, for instance asking a lower score to start with. Then there are peer-to-peer lenders, which can be wealthy individuals disposed to grant you the money: in this case, your loan is their investment.
Regardless of the source, a general rule applies: the lower your credit score, the more difficult will be to obtain an affordable rate and to qualify.
You can always know how much interest (and fees) lenders will charge because they usually disclose their APRs. We recommend to shop around for personal loans before taking any decision of such a kind. Our top selection for personal loans with bad credit is Badcreditloans.com. It is one of the most experienced lenders in its field, being specialized as the company name suggests, and you will find quite reasonable conditions. There are of course other viable options, like Monevo that caters to borrowers of nearly all the credit profiles. So, it is possible to obtain a loan even with no credit at all.
Mind also that these loans are unsecured by nature, so you aren’t asked or allowed to put a collateral asset to secure the loan. While this could be a strategy for qualifying or lowering your rate, that’s not the case.
Despite the bad credit, you can generally use a personal loan for every purpose that is declared in the application phase and at the loan agreement, including debt consolidation: there won’t be a limitation to the use you will make of the money unless specified.
The choice of a company is always a personal decision. However, you must consider a set of parameters when it comes to getting a personal loan with bad credit, exactly as there are with any loan: what APR and type of interest are offered, the loan terms if there are additional fees, what are the repayment schedules, and the eligibility criteria.
You will have to find the right compromise among all these factors. Furthermore, you may want to listen to what other people are saying about the lender concerned: great customer service and a high satisfaction rate should be considered, and you can easily find online reviews for reference.
We recommend to compare more personal loan with bad credit offers lenders we review all provide pre-approving offers, that will let you know if you can be approved and see your rate along with the term and borrowable amount. In this case, applying won’t cost you any reduction in your credit score and will allow the best possible choice for your needs.
If you research lenders on your own, beware of potential scams: there are unscrupulous lenders that leverage prospective borrowers in the urgency of obtaining money to make very appealing “sounds too good to be true” offers.
Generally, you can recognize them if they reached you in the first place, likely in an unsolicited way (for instance via email), pushing you with a misleading advertisement, by telling you they don’t need your credit history to qualify but asking to pay an upfront fee before actually signing any agreement. In doubt, you can discover if they are licensed to work in your State, and if they are accredited by institutions like the Better Business Bureau, as well as googling the company for customers’ reviews.
Among our selection of companies, there are a few that cater to bad credit borrowers, They are trustworthy, some are known names, others less, but currently rated from many verified customers having mostly positive feedbacks on unbiased websites like Trustpilot.
Personal loan lenders for bad credit also tend to fund borrowers the fastest as they can, and it is very likely that you’ll get your money within the same business day, usually 24-48 hours depending on the single lender and your bank recipient.
In face of an emergency, you may not have the time to do much. Fortunately, there are still a few possible temporary options you may want to consider: