We all need to take out a loan sometimes, whether it’s because we need to consolidate our debts, fund a major purchase, or simply get through the month with the bills paid. However, not everyone is fortunate enough to have a perfect 850 credit score, leaving many applicants feeling unsure of whether they’re eligible for a personal loan.
The good news is that you can qualify for a personal loan with a poor credit score. The catch, however, is that it might take a little more work than if you were applying with an 800-plus score.
At Match Financial, we work with lenders to help connect applicants to the credit they need, including those with bad credit. Below, we break down how you can get a personal loan with bad credit by following a series of straightforward steps.
What Is a Bad Credit?
The term “bad credit” sounds subjective, but credit scoring agencies have an objective standard for measuring precisely when someone’s credit is deemed “bad.” Top credit scoring companies like FICO use proprietary scoring models to collect an in-depth perspective of a person’s creditworthiness that is encapsulated in their FICO score.
FICO’s scoring model considers anyone with a credit score under 580 to have bad credit. In other words, if your score is near the 600-mark or higher, then this article may not apply to you. Instead, look into applying for personal loans with “fair” credit.
Credit bureaus generate credit scores to help lenders evaluate the trustworthiness of an applicant. Therefore, having “bad credit” implies that you present a high risk to lenders who may suffer losses due to bad debt. To mitigate risk, lenders may outright refuse to lend to those with bad credit or will offer higher interest rates or demand collateral.
Whether you’re applying for a mortgage, credit card, or a private student loan, banks and lenders are liking going to pull your FICO score to gauge your credibility. Personal FICO scores are rated according to the following scales:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-850
Getting The Loan You Need
So, your credit score isn’t what it used to be. Luckily, even with bad credit, there are steps you can take to ensure you get the credit you need when in a pinch. For your convenience, we’ve outlined these steps below.
Collect Your Information
Your first step toward securing a personal loan with less-than-good credit is to find out where you stand in the eyes of creditors. To start, you’re going to want to find out your credit score and review your credit report which, of course, is not the same thing.
You can use online credit scoring bureaus to view your credit score. However, only opt for credit agencies that offer “soft pulls” or “soft inquiries” since these will not adversely affect your credit score. Otherwise, simply reviewing your credit score can be enough to damage your existing score.
Consider Improving Your Score
If your credit score is considered “bad” by credit scoring agencies, you can always take measures to get it up to “fair” status. Although a fair credit score won’t necessarily qualify you for more loans, it may unlock more attractive interest rates and conditions.
It won’t hurt to dedicate some time to improve your credit score. This way, you can qualify for loans on more favorable terms. To get a better score, consider devising a strategy to pay down some of your existing debts. If this option is out of the question, review your credit reports and dispute any errors you might find.
Lastly, be sure to limit the number of loans you apply for. Although this tactic won’t improve your credit score, it will help safeguard your score from dropping any further. This is because lenders trigger a “hard pull” of your credit score every time you apply, thereby damaging your score. So, bolster your score and choose wisely and selectively which loans you apply for.
Now that you have your credit score and have made an effort to maximize it, you can start shopping around for loans. To get started, we suggest visiting your local bank or credit union and ask about the annual percentage rate (APR) and terms they offer for customers with bad credit.
Reputable online lenders also offer excellent personal loans for applicants with bad credit, and some can process applications in as little as one day. Whereas banks and brick and mortar credit unions can take weeks to work through an application, trusted online lenders can expedite the process for those in a hurry.
Keep in mind that you will be asked for several pieces of personal information when applying for loans, no matter your credit score. Before you apply for a personal loan, whether from a traditional or online lender, ensure that you have the following documents ready:
- Personal income information
- One piece of government-issued ID
- Proof of address
- Bank statement for the previous 3 months
- Play The Waiting Game
Once you’ve applied for your loan, you’re going to have to wait until the lender vets your application and determines your eligibility.
Traditional lenders such as banks and credit unions tend to take the longest to review loan applications, especially from applicants with bad credit. It’s not unheard of to wait 3-5 weeks or longer, in extreme cases, to hear back about a loan application from a bank.
By contrast, alternative online lenders tend to speed up the review process for loans. No matter your credit, applying for an online loan is almost always the fastest option, and some lenders even offer same-day approval or similar offers.
At Match Financial, we work with lenders to help you get the cash you need when you need it the most. If you are approved, you could see the funds deposited in your account as soon as early as 24 hours from the application’s receipt.
Types of Loans for Bad Credit
When you have bad credit, you don’t exactly have the pick of the litter—there are only a select few types of loans that you can apply for. However, this fact shouldn’t discourage you from sticking your neck out and applying for the various loan types available. For your convenience, we’ve listed the best loan types for bad credit below.
Secured Personal Loans
Secured loans are a common type of loan in which the loan amount is secured with collateral in the form of one or more assets. For example mortgages are often secured loans because the borrower’s collateral is seized if the borrower defaults on the loan.
Secured loans are riskier for borrowers because they can lose their assets if they default. On the other hand, secured loans are a safer bet for lenders because they have something to fall back on to recoup their losses.
A personal loan is a standard loan type for individual borrowers. These loans are repaid in regular installments (i.e., biweekly or monthly payments). Personal loans are either secured with collateral, or unsecured.
Paydays are high-interest loans that are worth less than standard secured or unsecured personal loans. Payday loans are short-term loans that carry a substantially higher cost for the borrower and usually do not exceed $500 in value. A typical $500 payday loan may cost a borrower between $50 and $150 in interest.
Peer-to-peer (P2P) lending cuts out the middleman by offering debt financing without a traditional lender institution. P2P lending often takes the form of crowdfunding and other direct lending by groups of people without collateral.
An unsecured loan is a loan that is not backed by collateral if the borrower defaults. Unsecured loans are riskier for lenders because lenders can suffer financial losses in the case of a default. Therefore, it is unlikely that someone with bad credit would receive approval for an unsecured loan. In most cases, unsecured loans have higher APRs and other terms that are favorable to lenders rather than borrowers.
Get Started Today
Match Financial works with lenders to connect borrowers with the cash they need. If you get approved for funding, you can receive cash deposits in your account faster than might think—inquire today for more details about how we can connect you with the perfect lender.