How to Get a Loan With Bad Credit
When you have bad credit, getting a loan isn’t easy, but it’s not impossible.
There are a number of lenders that offer loans for bad credit. These types of loans are a more expensive way to borrow although they are an option if you don’t mind the higher interest rates.
Types of Bad Credit Loans
When shopping for a loan, you could say that you don’t actually choose one, and that it chooses you. This is because loans rely on your credit score to help the lender determine whether you might be eligible.
Personal Loans – these are most suitable for people with a good credit rating or higher and often require a credit score over 700 to get approved.
Installment Loans – this type of loan is for fair to good credit customers and similar to personal loans with higher interest rates, usually requiring a credit score of about 600 to 700 for approval.
Payday Loans – this loan is for people with fair to bad credit, or none at all, where they might have a credit score below 600. These have the highest interest rates and APR of all options.
As you can see, the type of loan that might be for you is really based on how suited to it, according to the lenders anyway.
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What Lenders Looks For
With most loan options, lenders are going to look at your credit score. With payday loans this is less likely as most people that borrow a payday loan have a bad credit score and lenders know this, so no credit check is common for the payday loan borrower. This being the case, many payday lenders will use alternative data in combination with instant bank verification (IBV) details to review your account activity. Lenders will look for signs of whether you have any loans currently, how many if you do, and whether your payment history looks to be well maintained or do you miss payments.
Lenders of installment loans will look at a few things, including your credit score and alternative data like IBV and other things to gauge the risk involved with someone submitting an application. Another factor many consider which is not part of your credit score is debt to income ratio, which compares their debt to overall income. Some will also consider your credit utilization, which is a look at how much credit is used in comparison to what’s available.
Other considerations that lenders look for would be your employment history, how long you’ve been at your current job, your current income, and the amount of the loan requested.
Does Bad Credit Prevent Getting A Loan?
For the most part, having bad credit does not prevent you from getting a loan. At the same time, know that the lenders willing to approve your loan request are going to have higher interest rates to help manage risk and cover the loss of default payments, which are more common with those that have bad credit.
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How to Improve Your Odds of Getting A Loan?
Finding a personal loan is unlikely with bad credit, these are reserved for those with a good credit score, As such, if they qualify for a personal loan they’ll get better interest rates. Those looking for bad credit lenders are most likely to qualify for payday loans or possibly installment loans.
If you want to be eligible for better loan rates and terms, you will have to fix your credit score. This can take time and there are a number of ways of improving your own credit score to become familiar with.
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Reasons for Being Denied a Loan
Often it would be your credit score that is the deciding factor as to whether you might get approved for a loan, except in the case of payday loans, since most lenders of payday loans are unlikely to look at the credit score of those that apply.
When payday lenders use IBV, which is also for identity verification, it can allow them to see payments towards debt, missed payments and how many loans you might have. All of these or a combination of them can be just some of the reasons for a loan request being denied or rejected.
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If it isn’t an urgent need, its suggested that trying to improve your credit score would be your best option, so you might qualify for better rates in future. A good credit score is something to strive for, and if you have a poor credit history it’s never too late to try and improve your score.
It’s likely there will come a time in the future where you may need to borrow again, so if you currently have a bad credit score it would be good for you to have a better one in future so that you won’t have to pay as much to borrow then.
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You should also consider that you should only borrow what you can afford as monthly payments so you do not cause further issues with your credit score from late payments.