Medical situations come up. Cars break down. You get an unexpected bill in the mail. A personal loan can help you cover a big bill when you don’t have the cash on hand. There are many types of loans available, and finding the best options often means doing a bit of research. If your credit score is under 630, you will find that you have fewer options available, but you do still have options. Consider the following when looking for the best personal loans for bad credit.
The Types of Personal Loans
There are many ways to get funds when you need them. Your first step in finding the best personal loans is to understand what options may be available.
Unsecured Personal Loans
A loan is either secured or unsecured. An secured loan is tied to collateral like your car or mortgage. If you default on the loan, the lender can take your collateral as payment. An unsecured loan does not require any type of collateral, which makes it attractive and often faster to obtain.
Unsecured loans are not tied to your car’s title or to your paycheck, so they are not payday loans or title loans. They are simply a loan, much like a credit card, that is tied to your willingness to repay as evidenced by your credit score. There are some lenders who are willing to extend small personal loans to borrowers with credit scores between 300 and 629 points.
Credit Union Loans
If you are a member of a credit union, you might be able to work out an unsecured loan with a low interest rate. A credit union is a non-for-profit bank and those with accounts are considered members rather than customers. The credit union is often willing to consider all of your finances rather than just your credit score.
For borrowers with bad credit but a history with the institution, a credit union might be willing to extend a personal loan where other banks or lenders would not. To take out an unsecured loan with a credit union, you typically must have existing membership and accounts. This might be done quickly or might have a waiting period. The time frame for approval will vary at each credit union.
Charities and Non Profits
There are some charity organization and non-profits that are willing to extend small loans or even gifts of cash for families or individuals who find themselves faced with unexpected bills. These organizations will require information about you, your circumstances and your background before offering any funds, and even then they may not be able to help in particular situations.
A charities cash-flow is limited to the donations of others, and there is no guarantee or time frame on the availability of funds or the ability to help in every situation.
Friends and Family
If you have a friend or family member willing to help, you may be able to arrange a personal loan without interest. When you borrow from friends or family you can often arrange funds quickly, often through a trip to the ATM or the bank, but you risk damaging a relationship if you are unable to repay the loan under the terms you agree to.
A loan from a friend or family member also requires disclosing some of your personal finances which may not be something you are comfortable with. If you have a friend or family member willing to help, they might also be a applicant with you on an unsecured personal loan.
Choosing the Best Personal Loan with Bad Credit
There are several factors to consider when deciding which loan type and lender are the best for your specific situation.
How quickly will the loan be funded?
The funding speed of a loan varies by individual or organization. If you are borrowing from your family member, you might have cash in hand after a quick drive to the ATM. If you are arranging a personal loan from a bank or credit union, funding can take longer based on levels of approval, bank hours and transfer times.
Online lenders typically can take two to seven days to fund a loan if you choose to apply online. The lender will disclose the funding time for the loan during the application process as it varies between individual lenders. The more prepared you are with your own financial documents and information the more smoothly the application and funding process can be.
How much will the loan cost?
There are several costs to consider with a loan. You will typically pay interest on a loan through the annual percentage rate or APR. The higher the APR, the more the loan will cost. Typically longer loans have higher APRs as there is greater risk for the bank as it waits for you to finish repaying the loan. The loan with the lowest APR (but with payments you can afford to make) is typically considered the best loan option.
Two other costs to consider when taking out a personal loan are any origination fees and social cost. Some loans charge you an APR and also require you to pay a funding or origination fee. There may be other fees associated with a loan as well. For a personal loan arranged through friends, family or charity, you may encounter a social cost which is non-financial, but can cost you some pride or in a relationship.