A good or excellent credit history gives you an opportunity to have soft credit terms. You can get your application approved as soon as possible and qualify for a lower interest rate.
If you have poor credit history of between 350 and 579 points, you will not qualify for a personal loan unless you apply with a guarantor.
However, now there are more and more lenders who make it possible to get approved for a loan, even if the financial portrait of the client leaves much to be desired. Loans can be made for emergency expenses, medical bills, debt consolidation, and other financial needs.
Next, we will tell you more about personal loans with bad credit, how to contact the lender, and what documents to prepare. How to follow the step-by-step instructions to get your application approved.
Check Your Credit
The first step in obtaining any loan is to check the creditworthiness of the user. With credit bureaus like Equifax, Experian, and TransUnion, you can get free copies of your credit report every 12 months.
You can do this through the AnnualCreditReport.com website. You will not see your credit scores, but you will be able to visit the websites of each credit reporting agency.
When you receive the report, you will know exactly what your credit score is. If you find inconsistencies in your report, then first correct them before applying for a personal loan. Because this can greatly affect your credit history and the decision whether to give you a loan or not.
Decide Where to Get Personal Loan
Next, you should explore the places where you can get a personal loan. Evaluation criteria should be as follows: where are the best interest rate, loan term, and features? The main options are online lenders and credit unions when it comes to a borrower’s bad credit score.
The first ones work online, and you can easily compare offers from the comfort of your home. The latter may have lower APRs and supple terms for their clients. Let’s take a closer look at each of them next.
Credit unions are ideal for borrowers with both good and bad credit. For the latter, this is an opportunity to improve your rating in order to get a loan. As a result, they will receive softer requirements and lower interest rates. But to apply for a personal loan, you need to be a member of a credit union. Membership is not free and requires a small fee.
Credit unions are also a good option if you need a small personal loan at low annual interest rates. APR is usually kept at 18%, which is very attractive for low-rated borrowers.
Turning to online lenders is one of the fastest ways to get a personal loan since everything happens online, and you don’t have to go anywhere. In most cases, you can pre-qualify and see your rate and term in advance if you choose to contact online lenders.
This process includes a soft credit check and allows you to compare loans from multiple lenders without affecting your credit.
Regardless of your credit history and rating, you will always find a lender who will agree to cooperate with you. Only here, the rates are higher if the rating is low. Online lenders may also consider your employment and education when making a credit decision.
Of the minuses, one can single out high APR for borrowers with a bad and fair credit history and a lack of personal support. Online lenders have support services that can be contacted by phone or online, but they don’t have physical branches that you can visit when you need help.
When you have decided who you are going to apply to for a personal loan, start comparing lenders. Evaluate their reputation, interest rates, and fees they charge. It is also important to consider the types of loans offered, as not all of them may be right for you.
Consider also the features that a particular lender offers. Like debt consolidation, where the financial institution sends money directly to the lenders, eliminating this step for you. Other organizations may give you a choice of the due date, skip a payment, or include a grace period before late fees.
Check if the lender charges a loan application fee, prepayment, or processing fee. After all, these costs can accumulate very quickly, depending on the amount for which you take out a loan. Many lenders will not charge you a penalty if you pay off your borrow early. But many of them charge a fee for late or returned payments.
However, do not immediately refuse a particular lender. Even if you pay a fee, you may end up with lower interest on the loan.
When applying for a personal loan, pay attention not only to the monthly payment and interest rate but also to the APR. APR consists of the interest rate and any additional fees. It is formed due to the credit rating and the term of the loan.
Typically, a loan is issued for a period of two to seven years. A longer-term loan has lower monthly payments but higher overall interest. The lowest interest rates are usually offered only to those customers who have an excellent credit history.
If you have a low credit score and want to have a better chance of getting a personal loan with a competitive interest rate, look for lenders who take additional factors into account. These include work experience, education, solvency, and more.
Typically, the repayment period for a personal loan is 12, 24, 36, 48 or 60 months. The longer the repayment period, the lower the monthly loan payments. But you will pay more interest than if you have a shorter repayment period. In addition, the interest rate can be linked to the repayment period. Shorter repayment periods usually result in lower APR.
Longer repayment periods may limit you from taking out future loans. Having open credit affects your ability to get approved by other lenders and get new credit cards. Some personal loans also come with prepayment penalties. Therefore, we advise you to take the shortest loan period that you can afford.
Required Credit Score
Credit scores are incredibly important when getting a personal loan. This is almost the key factor that determines whether your application is approved or not. After all, your credit score is the main indicator of your debt and the history of repayment of previous loans.
The most popular credit rating system is FICO. The points in this system start at 300 and go up to a maximum of 850. The score is based on the total debt outstanding, payment history, your credit balance, and any new debt you have.
As a rule, lenders do not take borrowers with a rating of less than 610-640. To qualify for the lowest lender interest rate, you must have at least 690 points.
|Type of credit rating||Loan conditions|
|Poor||It is difficult to get a personal loan. If the application is approved, the interest rate will be high, and you will likely have stricter borrowing limits.|
|Fair (580 – 669)||More likely to qualify for lower interest rates, but only with smaller loan amounts.|
|Good (670 -739)||More likely to get lower interest rates and qualify for higher loan amounts.|
|Very Good (740 -799)||Great chance to qualify for the lowest interest rates and even higher loan amounts.|
|Exceptional (800+)||Exclusive rights to the lowest interest rates and the highest loan amounts.|
If you have a bad credit history and a poor credit score, then look for a financial institution that is not hard on borrowers. But be aware that such lenders provide high-risk loans to customers.
They will charge a very high APR to help cover your risk. For this reason, make sure you can pay on time and that your borrowing is worth the significant extra cost that you are willing to pay in interest.
When applying, the financial institution will require you to provide a package of documents to complete the process. You may be required to provide the following documents:
- Your contact information: full name, social security number, and address
- Driver’s license or other ID
- Forms W-2 (for last two years)
- Two recent bank statements for all bank accounts
- Personal loan information
- Your federal income tax return (for last two years)
- Pay stubs for the last few months
- Utility bills or mortgage statement
You may also be asked for additional documents. Therefore, be always prepared to provide them as quickly as possible.
Pre-qualification allows the borrower to know if he or she is eligible for a loan. You provide your information to the lender to see if you have received pre-approval using the Preferential Credit Report Inquiry. Typically, lenders perform a rigorous credit check that temporarily lowers the borrower’s credit score.
It is crucial to talk to a prospective financial institution to see if you can prequalify for a personal loan. You can then evaluate multiple borrow options without harsh oversight conditions. With some lenders, this process will even take just a few minutes.
A guarantor is a third party who agrees to sign a credit with you. They agree to pay the loan for you if you can’t. A guarantor can help you qualify if you’re having trouble getting a loan. He must have a high credit score and a much better credit history than you.
But first, you need to confirm with the lender whether guarantors are allowed since not all financial institutions allow them.
Taking out a borrow with a guarantor can ruin a personal relationship if you have trouble repaying the loan. Make sure you both want to participate in lending and know all the terms and pitfalls. Because the consequences will be much greater when more people are involved in the process.
After you have found the best lender, collected a package of documents, and passed a preliminary check, it’s time to apply. You can do this online or in person. The last items on the list of documents are your address, Social Security Number (SSN), and information about your income.
Some lenders may give you an application decision on the same or the next day after you submit your application. But most of them can keep you waiting for a response within a week.
Getting bad credit loans can be the solution to many financial problems if you follow our guide. It is very important to calculate your budget in order to realize how much it will be most convenient for you to make payments and not fall under penalties.
Also, consider other options in detail before taking bad credit loans. Since you are undoubtedly waiting for a high annual interest rate.
Pre-qualification will help you assess the risks and choose the terms of a financial transaction that will not hit your wallet too hard. After all, this type of borrowing leaves a mark on the credit history. And if you go out to post collateral or get a guarantor, then this can provide you with better APRs.