Things To Consider Before Seeking Personal Loans For Bad Credit
A bad credit loan can give you access to the money you need to pay for emergency medical procedures, vehicle repairs, personal items, and any other much-needed expense. However, before you submit your application, it’s always a good idea to know how these lending products work and what responsibilities you’ll be taking on as a borrower.
To help you choose the ideal financial product for your needs, keep reading to learn about the best personal loans for bad credit.
Credit Scores Make A Difference
One of the most important factors that influence the outcome of your loan application is your credit score.
- This number (which is also known as a FICO score) ranges from 300 to 850. You’ll want to keep it as high as possible to improve your chances of a successful application
- Being approved for a loan isn’t the only reason to maintain a high rating. If your FICO numbers improve, you can benefit from lower interest rates and reduced loan fees
While a score of 700 or above is ideal, you’ll want to start by aiming for a rating of 600.
Make Sure You Can Afford The Repayments
A bad credit loan requires you to repay the amount you borrow in fixed monthly payments until the debt is completely paid off.
- You’ll need to know exactly how much your monthly repayment will be before you finalize your loan
- When you apply for financing, your lender should provide you with an estimate of your monthly payment. If your loan is approved, you should receive some paperwork stating exactly how much you need to pay and on what date the installment will be due
- It’s important to make your payments on time because failure to do so will be marked on your credit report. You’ll also run the risk of a charge-off or default which can cause your FICO score to drop dramatically
Know Your Lending Options
There are a variety of lending options that borrowers with a low rating can apply for and stand a reasonably good chance of getting approval. Here are some of the lending types you can choose from:
- Credit cards. It’s possible to be approved for a card with a low FICO score but you’ll want to find a provider that caters to customers with poor credit. Some cards offer incentives like cash back rewards while others come with an introductory 0% APR. This will save you a significant amount of interest during the first year to 18 months
- HELOCs. If you’re a homeowner and have paid down your mortgage by at least 20%, you may be eligible for a home equity line of credit. By borrowing against the amount of equity in your mortgage, you could qualify for a lower APR and budget-friendly repayment terms
- Title loans. These financial products are aimed at vehicle owners who are willing to use their car or truck as collateral to guarantee the money they borrow. Typically, it’s easy to qualify for this type of financing with a low score. However, you’ll need to be aware that you could lose your vehicle if you fail to make your payments
- Bad credit personal loans. This option is by far the most popular for borrowers with low FICO scores. These loans are designed with bad credit customers in mind. Also, the approval process is a lot easier than it would be with a bank or large financial institution
Alternatives To Consider
If you’re still unable to secure financing, there are several other options to consider. Here are some ways you could potentially secure the funding you need:
- Effective budgeting. Creating a monthly budget will help you spend less than you earn and create a surplus that you can use to boost your savings or cover your future loan repayments each month
- Repayment plans. If you’re searching for a lending product to refinance existing debt, you may be able to negotiate a repayment agreement with your creditor instead. This strategy works especially well for medical debts. Additionally, card companies will consider enrolling you in a hardship program if you genuinely can’t afford your monthly payment
- Crowdfunding and loans from friends and relatives. If you need money to pay for a serious emergency, try finding a donor among your friends and relatives who’s willing to help
The Bottom Line
A bad credit personal loan could be the ideal solution for your financing needs. With quick application times and reasonable APRs, this type of lending product becomes even more affordable when you take steps to increase your FICO rating.
If you’re approved for a personal loan, you’ll want to make your monthly payments on time to keep your score as high as possible. Should your application be rejected, there are still several alternatives you can explore to help pay for your non-negotiable expenses.