It can be difficult for people with poor or no credit scores to secure loans from banks and other traditional lenders.
But there are alternatives that may work for you, like peer-to-peer lending or borrowing money from family members (or friends). Before applying anywhere else, check out these options first!
Personal Loan Companies
Personal loans are like your traditional bank loan, but they’re offered by companies that specialize in lending to subprime borrowers. These lenders may be able to help you get the small personal loans for bad credit you need at a lower interest rate than what you can expect from banks or credit unions. They usually advertise their services on the Internet and in other media, and you can find them with a quick online search.
Make sure to thoroughly research the companies you’re considering before applying. If you do so, you’ll give yourself more of a chance of getting approved and you can also learn more about the lenders’ policies and whether you’re actually likely to get approved.
Some personal loan companies offer installment loans designed specifically for those with bad credit. These loans are usually structured as open-ended lines of credit, and the borrower can borrow a certain amount of money up to a certain limit. The debtor will make scheduled payments each month until they’ve paid off their balance in full.
If your credit is especially poor, try applying for an installment loan rather than a line of credit. With installment loans, you’ll borrow a set amount and pay it all back when you’ve repaid your loan in full, which will help your credit score because it shows that you’re capable of paying your bills on time.
Peer-to-peer (P2P) Lending
This is the source of financing that removes the bank from the picture and allows you to apply for a loan directly with other people, not institutions. You can think of this as crowdfunding your loan; you will be receiving money from individual lenders around the country who want to help fund your loan, rather than a bank. Some websites connect borrowers with lenders, and you can use them to submit your request for credit along with your personal information and the amount of money you need.
In exchange for their investment in your loan, P2P lenders generally ask that you pay them back with interest, although sometimes they may also request a share of your future profits. The interest rates for these loans will be higher than those you can expect from a bank, and it might take longer to pay off the loan if there’s no collateral involved; however, many people prefer this type of lending because they want their money going to someone who really needs it instead of lining the pockets of a big bank.
Getting the Loan
When you apply for a personal loan, the lenders will make their decision based on your credit history and score. If you don’t have a good credit history (or any at all) or if your credit score isn’t very high, they may refuse to lend you money. However, this doesn’t mean that you can never borrow another dollar in your life, so long as you know how to get a personal loan if you have bad credit.
To improve your chances of being approved for a loan, the first step is to provide proof that you can repay it within a reasonable time frame. If there’s no obvious way of doing this in your initial application, ask about providing collateral or showing that you have a regular source of income. Of course, professional lenders are not banks and they’re not that strict when it comes to your credit score, but you still need to prove that you can repay the loan.
Providing the Collateral
If the lender decides to give you a personal loan, you’ll need to provide security against it. Many lenders will ask for a written promise from your employer that they’ll pay back the money if you don’t, or something of equal or greater value, like a signed contract or promissory note. In other cases, they may take a second mortgage on your home or require you to give them a title—in other words, they’ll “own” something of yours until the loan is paid off.
Lenders will be more likely to agree to lend you money if you can provide collateral; however, this doesn’t mean that those who don’t have anything worth taking as security are completely out of luck. You can also sign up for a third-party payment service, which will allow you to make your loan payments through the online service and they’ll send payments to lenders on your behalf each month.
The personal loan industry is changing, and you may be able to get a personal loan with bad credit. The best way to find out if you qualify for this type of lending is by researching the lenders’ policies and whether or not you’re actually likely to get approved.