Paradoxically, those who have bad credit could benefit the most from a personal loan, yet it’s often difficult to obtain one. Personal loans have many advantages over credit cards. They have a fixed interest rate, a fixed monthly payment that doesn’t fluctuate, and, usually, they offer better interest rates than credit cards. Borrowers can use these loans for almost any purpose, including paying down debt, making a large purchase, or fixing the house. No matter what you need the money for, a personal loan can often provide you with the funds you need at a lower rate than your credit cards.
How do people with bad credit get these loans? Here’s your quick guide to getting the loan you need!
Caution: Don’t Go To Payday Lenders!
Before getting into obtaining personal loans with bad credit, you should first know what not to do. Do not go to a payday lender. Ever. These places charge exorbitant APRs that make it nearly impossible for you to pay the loan back.
These companies market to people with a low credit score, luring them into thinking their companies are the only way to get a personal loan. The reality is that there are almost always ways to get a loan at a significantly more reasonable APR than what payday loan places offer.
Try P2P Lending For Personal Loans
One way to get a loan with bad credit is to think outside of the traditional financial system and use P2P (person-to-person) lending. Sites like Prosper and Lending Club offer loans to borrowers who may not qualify with a conventional bank. With these sites, borrowers apply, the site calculates a reasonable APR, and individuals from around the world fund the loan request. As you pay the money back, the site passes along the interest to the lenders.
As these companies are not banks, they frequently accept applicants with bad credit scores and individual lenders who are willing to take a higher risk fund them.
Applying to one of these sites is usually a soft credit pull, so you have very little to lose to see what your options are.
Some Financial Institutions Offer Bad Credit Personal Loans
If you’re looking for a loan with bad credit, some companies are well-known to lend money in these situations. You can try going to:
Note that these loans typically have very high APRs (sometimes as high as 35%). While they won’t be cheap, you might be able to get the money you need.
If You Can, Consider A Secured Personal Loan
If you have some assets to your name, consider a secured personal loan. For example, if you have a car, you could get a loan putting the car up as collateral (this is called an auto equity loan). Alternatively, if you have a home, you could consider a home equity line of credit instead. You’ll almost always get cheaper interest rates this way!
Getting A Loan Will Be More Challenging But Not Impossible
With bad credit, it’s not impossible to get a personal loan by any means. It just takes a little bit more work and knowing the best places to apply.
Sometimes it’s more fiscally advantageous to try and improve your credit score. If you can improve it, then obtaining a high-APR personal loan may not be your best option. If you’re interested in going this route, here are six ways to raise your credit score.