If there are mortgages, credit cards, and auto loans for people with bad credit, there are surely personal loans made for this group of consumers. These personal loans cater to people with credit scores of 630 and below, although it could vary among lenders. Have bad credit and want to avail of personal loans? Here’s what you should know.
Going Beyond the Credit Score
Just like any other loan, a personal loan can’t be underwritten without a credit score. It separates the prime borrowers from the subprime, the best rates from the not-so-great rates. A borrower’s credit standing can’t be emphasized enough.
But it’s possible for personal loan lenders to look beyond the credit score and credit history. They see credit as an essential indicator of risk, yes, but it is just one factor in the overall review of other things that make a personal loan. This leeway helps people with bad credit take out such loans.
Finding Lenders and Cosigners
If you have poor credit, here are some things you can do to find a personal loan.
1. Consider non-traditional lenders.
- Credit unions. They are considered the first line of defense when it comes to bad credit personal loans. They tend to offer lower rates than online lenders. An average APR given by credit unions is 18%.
- Online lenders. They offer rates that may be lower than what banks offer, but higher than those offered by credit unions. A typical minimum credit score for online loans is 600-650.
2. Try secured personal loans. These are loans that require assets as a pledge securing the repayment of the loan. It could be a car, savings account, investments, etc. In exchange, you could be given a lower rate and a larger loan amount.
Just remember that your lender will seize the asset if you fail to repay the loan.
3. Get a friend or a loved one to cosign your loan. Adding a co-signer boosts your chances of getting approved if you can’t qualify on your own, e.g. credit. To be clear, having a co-signer doesn’t necessarily affect your rate. Your co-signer will be subjected to a credit check, income verification and other qualifying processes the lender deems fit.
Co-signing puts a major responsibility on the co-signer in the event you default on your loan. This invariably puts your co-signer in a difficult situation so be sure to brief him/her of the risks and of course, be a responsible borrower.
Going Back to Your Credit Score
As you can see, bad credit won’t stop you from getting personal loans. Arm yourself with extra patience and effort in shopping for loans and lenders to work with your credit situation.
Going forward, work towards improving your credit record and score. This will lead to you better loan opportunities in the future.