If you’re applying for a loan, a bad credit score can be a major obstacle. From a lender’s standpoint, a poor credit score is a mark of high risk in an applicant. And if you have a history of defaulting or paying your bills late, the financial institution may decline your application.
A credit score is a three-digit number that lenders and creditors use to assess your credit habits. A low score typically indicates credit problems, whereas a high score indicates a healthy credit pattern. Improving your credit before applying for a loan is the best way to ensure an approval. But, what if you need bad credit personal loans urgently? Do you have any options?
Although getting a personal loan with bad credit is challenging, it’s not entirely impossible. Bad credit personal loans can be used for a variety of purposes, such as home improvement projects, debt consolidation, a car repair and even as student loans for college tuition. Some banks have strict lending guidelines and will not consider applications from people with low credit scores. Fortunately, this isn’t always the case. If you apply with the right bank, you can find bad credit personal loans that will suit your needs.
When looking for personal loans for bad credit, it’s important that you speak with different banks and weigh your approval chances. Check your own credit report beforehand and order your FICO score. Prior to applying, contact banks and inquire about their lending guidelines. Does the bank offer bad credit personal loans? If so, what is the minimum credit score for personal loans with bad credit?
This approach is helpful because you avoid the risk of submitting application after application, which may only lower your credit score more, if you get denied.
Banks that have personal loans for people with bad credit typically require collateral and a co-signer. A co-signer is a person who also signs the loan agreement. This person must have a good credit history, and by signing the loan agreement, they assume responsibility for the debt if you default.
Banks vary, and along with a co-signer, some institutions also require collateral. This is a valuable piece of personal property that secures the loan. For example, if your car is paid off, you may sign over your vehicle title as collateral. In the event of default, the lender can repossess and sell your car, and then use the proceeds to repay your debt.
If you do not have collateral or a co-signer to back your credit reputation, a bank or credit union isn’t likely to approve your request. However, there is another option: payday loans.
Payday lenders have personal loans for bad credit, and these short-term loans do not require collateral, a co-signer or good credit. If you need emergency cash for an auto repair or another expense, you can receive funds in as little as one business day.
Understand, however, that these loans are extremely costly. Payday loan lenders charge about $25 for every $100 borrowed, plus the full loan balance is due within 14 days. Applying for these bad credit personal loans should always be a last resort used only after you’ve exhausted other options.