How to Get a Loan with Bad Credit

If you have bad credit, you might need to take some extra steps to secure a loan, but you do have options. If your credit score is less than 629 and you need a personal loan, there are likely more options available to you than you’d realize. Also, having bad credit doesn’t mean you’re stuck with astronomical interest rates on your personal loans. There are many options available for borrowing money with less-than-perfect credit.

Having bad credit means you can’t rely just on your credit score for borrowing funds. Those with high credit scores might be immediately approved for loans based solely on their score, but that doesn’t mean there aren’t options for fair or poor credit borrowers. In most cases, you can still qualify for personal loans, even if you have bad credit, simply by taking a few extra steps to verify your willingness and ability to repay the loan.

Looking for a loan with bad credit? Here’s what to expect.

Know your credit score.

Your credit score may be higher than you’d think, especially if it’s been awhile since you checked it. Before you apply for any new loans, check your credit to see just where you stand. Credit scores over 720 are considered excellent. Scores between 690 and 719 are good. 630 to 689 is considered fair credit, and scores below 629 are considered poor credit.

Your FICO credit score is based on a number of factors that add up to tell a potential lender how likely you are to repay a loan. If you’ve failed to make timely payments in the past, for example, you will likely have a low credit score and lenders may be wary. A mistake with credit can last for years on your credit score, however, even if you’ve done everything correctly following late or missed payments in the past.

You can check your FICO score in several places including through your bank, by ordering a credit report, or by using a credit monitoring service online.

Compare your lending options.

With a credit score considered fair or bad, you may not have as many options for borrowing money as those with excellent credit, but you do still have options. Don’t take out a loan at the first opportunity. Different lenders can have different terms on their loans, and you want the best possible terms to reduce your payments and be able to repay your loan as quickly as possible.

  • Traditional banks – In most cases, traditional brick and mortar banks won’t be the ideal place for taking out a loan with bad credit. Traditional banks have the strictest lending requirements and can require large amounts of paperwork. The exception might be the bank where you have your own accounts. That bank may be willing to loan you money knowing they have access to your other accounts for repayment.
  • Credit unions – Credit unions work like traditional banks in many cases but might have more flexible loan guidelines for would-be borrowers. Credit unions have expanded beyond traditional membership, which was open just for those in certain industries and areas and are willing to make loans for others. Since credit unions are community based, but business based, there may be more funds for borrowing for those with low credit scores.
  • Online lenders – There are online banks competing for your business from all over the globe. These online banks offer more flexible terms and fast approval since the entire process is done through the internet. There is no overhead for these lenders like there would be for a traditional brick and mortar bank, so loan terms are often less expensive. Online lenders can often approve an application in just a few days and have funds deposited electronically as well.

Find the most favorable loan terms.

Loans are not created equally, and you’ll want to find the best terms for your situation. Typically, the more money you borrow, the more you can expect to pay in interest. Likewise, the longer the repayment period, the more you can expect in interest as lenders need to offset their risk by asking you to pay more in interest.

As you are comparing loan terms, avoid taking on more than you strictly need in the loan. Get the smallest loan possible with the fastest repayment option, and you’ll not only get the best lending terms, but you’ll be able to repay the loan quickly and more easily since you won’t have borrowed more than you can repay.

Complete the application.

In most cases, you’ll be asked to complete an online application. Even brick and mortar banks will ask you to complete the online application. Nimble lenders will be able to process your application quickly and easily and you might have your answer shortly after you submit your application for approval.

Be prepared, as you complete your application, to provide your personal details as well as your personal banking information and paystubs. With bad credit, lenders will use your income and banking information rather than your credit score as the basis for their decision.

Repay the loan quickly.

Once you’ve completed the application and been approved for your new loan, funds will likely be deposited within a few days. Use the funds as you need to but be diligent about repaying the loan as quickly as possible. Repaying the loan may help improve your credit score, if the lender reports payments to the credit bureaus. Even if your repayment doesn’t help boost your credit score for future borrowing, paying off your loan rapidly will ensure you have clout with your lender should future needs arise.