5 Tips For Getting Personal Loans With Bad Credit
Having bad credit doesn’t mean you can’t get a loan; it simply means that you’re going to have a tougher time, do a little bit more research, and probably have to live with terms that aren’t as attractive. Exploring your options for getting personal loans with bad credit starts with a realistic assessment of your situation, consideration of the kinds of options out there, and deciding which best fits your needs.
Here are some things to keep in mind when you’re trying to get a personal loan with bad credit.
Watch out for predators
The fact of the matter is that there are some lenders out there who engage in predatory practices. While there are laws in place to curb many of these practices, some lenders find ways around them. Unfortunately, this is especially true for lenders who make offers to people with bad credit. You need to be circumspect, and choose a lender that’s not going to simply take advantage of your situation.
Understand that you’re going to pay a higher interest rate
That’s just the way our system works. If your credit score is above 720, you’re going to get great rates. If your credit score is between 650 and 720, you can get decent rates. Below 650, and you’re looking at rates that aren’t nearly as attractive. If you can wait a while to apply for your personal loan, consider taking steps to improve your credit score in the meantime. It will pay you back many times over in the additional interest you’d otherwise pay.
You can do some relatively simple things to improve your credit score in a quick fashion. For example, simply paying all of your bills on time for six months can raise your score as much as 20 or 30 points. If you can lower your overall credit balances, that will help too. Consider getting a copy of your credit report, and look for errors. If there are errors, you have a right to dispute them by contacting the credit bureau.
Go for a secured loan whenever you can
There are many types of secured personal loans out there for people with bad credit. Some of the most common types include:
- Car title loans. These are loans that use a vehicle as security on the loan. Know that choosing this kind of loan will usually require you to carry full insurance coverage, so factor that in as an additional cost.
- Home equity loans. Similar to car title loans, home equity loans use the equity in your home to secure the loan. Home equity loans will get you a better interest rate than many other loans, but it can be difficult to get one if you have bad credit. Talk with a variety of lenders, as there are some that will work with you in this regard.
- Home equity lines of credit. This is like a home equity loan that is disbursed on an as-needed basis. Typically, the rate will be slightly higher than with a home equity loan, but with this type of loan you also can borrow only what you need, when you need it. Here again, not all lenders will offer home equity lines of credit if you have bad credit.
If you can get one of these types of loans, you’re usually much better off.
Unsecured loans can be costly
Unsecured loans can be costly, and with bad credit they are even more so. The most common type of unsecured loan you’ll qualify for with bad credit is a payday loan, and many of these lenders fall into the “predatory” category above. Think long and hard – and make sure you fully understand rates and terms – before you choose a payday loan.
In some cases, a lender that is willing to make a personal loan to someone with bad credit is also willing to negotiate. Get several offers, and use one to leverage better terms on the others. It never hurts to ask for a better rate; doing so isn’t going to convince the lender to rescind the original offer.
Having bad credit doesn’t mean you can’t get access to the money you need. However, it does make you vulnerable. The best way to protect yourself is with knowledge. Understand what options are available to you, and consider all of the terms and rates before you make a final decision. A little bit of diligence will keep you from becoming a victim, and from ruining your credit even further.
John Haller is the founder of Fidelity One Credit Corp, a socially responsible company offering auto secured credit cards, revolving lines of credit, and auto title loans. Fidelity One has been in the car title loans business since 1994 and is a Better Business Bureau registered company.