If your credit score is below 630, it is bad. However, this does not have to stop you from getting a loan. Some lenders only cater to people who have bad credit. Although such companies take credit histories and scores into account when deciding whether to give you a loan, their requirements are more flexible than those of banks are.
While loans from online lenders who are reputable are good options for most people, you should first visit your local credit union before trying your luck on the web. Most credit unions have lower rates of interest than online lenders and their loan terms are more flexible. The maximum APR at credit unions is 18 percent.
However, if you cannot get your loan through a credit union, you should first compare several online lenders before getting into any loan agreement. The rates for people with bad credit usually vary widely depending on your underwriting agreements.
How to compare loans for bad credit
Borrowers with fair or bad credit scores, due to high credit card balances or missed payments, usually end up paying more interest on personal loans than people with good credit scores. You might also have to consider other options such as having a cosigner who has good credit or securing your loan with collateral. Even the highest APR from online lenders is much lower than payday loan rates, which are up to 400%.
Your rate, including monthly payments and fees, is a key decision factor when applying for any loan. However, if you have a low credit score, you should also look out for the following features:
Does the lender communicate with credit bureaus? – A lender who reports your loan repayments to the major credit bureaus will help you to improve your credit.
Can I reduce my rate? – Some online lenders give borrowers the chance to lower their rates over time if they show responsible financial behavior such as building savings or paying down their debt.
Can I prequalify using a soft credit check? – Most online lenders usually prequalify you for a loan even with a soft credit check. This means that you will be able to see your monthly payment and rate before your loan is approved. To get a final approval, the lender might ask for a hard credit check.
Other loan options for bad credit
If you are not able to keep up with multiple payments for a number of debts, you should consider taking out a debt consolidation loan. This personal loan brings all your debts together into a single loan, which has a lower rate of interest – saving you money in the end. On the other hand, if your credit score keeps you from qualifying for an unsecured loan, you should take out a secured loan.
Certificate of deposit accounts and cars are the most popular forms of collateral that people use when taking out secured loans. Do you know someone with good credit who is willing to cosign your loan? Some lenders allow people with bad credit to add cosigners to their loan applications.
Just remember that defaulting on a cosigned loan means that your friend will have to bear the burden of repaying it. This will affect your credit and your friend’s credit negatively. Before asking anyone to be your cosigner, you should understand the risks that it poses: you could destroy your relationship.
When looking for online sources for loans with bad credit, you should only consider reputable lenders. Make sure that you ask the lender plenty of questions to establish his/her credibility and read online customer reviews for more insight.
