When trying to get a loan, credit history is important. Based on how you handled dues or bills and your record of past loans, lenders use credit history to assess whether you’re financially capable of paying off your loans on time.
You may be wondering how you got rejected on a loan application before; it might be because of bad credit. The problem is that having a financial issue or struggling to build credit as a newbie in managing finances can knock you out of obtaining a good credit score. However, that doesn’t necessarily mean you can’t be approved for a loan. There are still several ways to get bad credit loans.
Read on if you want to learn how to find loans for bad credit.
What’s A Bad Credit Score?
Before tackling how to find bad credit loans with instant approval, you must understand how lenders see you based on your credit score.
Credit scores range from 300-850. They’re an attempt to measure the likelihood you’ll repay a loan. The higher your number, it’s believed that you’re more likely to repay.
People with credit scores of 650 and below are considered high risk. Bad credit scores start from there and usually entail higher interest rates from the lender. If you’re in this category, you’re a prime candidate for bad credit loans.
Depending on the lender, the definition of a “bad” and “good” credit score can vary. Some market to potential borrowers with a sub-650 score, while some won’t touch consumers with credit scores under 650.
How Does Someone Get A Bad Credit Score?
The most common reason an individual gets a bad credit score is when they don’t pay their loans. But, there are other reasons why people obtain bad credit scores, which include having an unsettled or canceled balance. This is why you must be responsible for your payments when getting a credit card. Otherwise, it becomes harder for you to get approval for a personal loan.
Having A Good Credit Score: What’s The Advantage?
All you need is to pay your monthly bills on time, and you’ll surely be on your way to establishing a good credit score. Having a good credit score unlocks several benefits. It provides a higher loan approval possibility and allows for a higher loanable amount. A good credit score also makes a higher credit limit for your credit cards and lowers interest rates.
How To Find Bad Credit Loans
Just because you have a bad credit score doesn’t mean it’s impossible for you to get loans with instant approval.
While it’s true that it will take time shopping around for affordable repayment terms and interest rates, there are outlets for individuals looking for bad credit loans.
Don’t bother inquiring with big regional and national banks. These financial institutions stick tightly to credit score ratings. They’re only a viable option if you have already taken the time to fix your credit report to raise your score.
Find a loan from one of the sources listed below if you don’t have the required time to improve your credit score.
Try Online Lenders
Online lenders have changed the borrowing and lending landscape around the world in many ways.
For one, they can be the best alternative if you find it difficult to get loan approval from financing companies, like banks. When you need fast cash because of being caught in a financial emergency, online lenders can really be helpful.
Another benefit of getting loans from online lenders is that you can use your smartphone or personal computer to track the entire application process. Since loan application and cash disbursement happen online, expect the process to be pretty straightforward.
For example, CashFlex is an online lender that offers flexible loans.
Get Bad Credit Loans From Credit Unions
Credit unions can be likened to those small community banks you know from years ago. A credit union may be willing to disregard a poor credit history and, instead, make a judgment on whether to approve your loan application based on your promise to repay and your character. It’s especially true for credit unions that are community-based or affiliated with your employer.
Most credit unions actively look for borrowers. You’re likely to find one somewhere that’s willing to work with you if you can afford the repayment terms that match your credit record.
The 18% interest rate ceiling is the most promising aspect of getting a loan from a credit union. It applies to anyone, regardless of credit score. Getting a similar loan from other financial institutions, like banks, could result in an interest rate of as much as 36%.
If you’re a government worker or a teacher, consider approaching SchoolsFirst Federal Credit Union or States Employees Credit Union. You also want to check out the PenFed Credit Union or Naval Federal Credit Union if you’re an armed forces veteran.
By joining a credit union, you could be up for more favorable loan repayment terms, regardless of your credit history. Almost every consumer could qualify for a credit union.
Borrow From Your 401(k)
There’s no credit score requirement with 401(k) loans since you won’t be dealing with any lender whatsoever. You’re actually borrowing from yourself with a 401(k) loan. Whatever amount of interest you’ll be paying will only go right into your 401(k) account. You’ll also have up to five years to pay the loan back in full as long as you’re going to stay with your employer.
A 401(k) loan is, indeed, a legitimate option if you need quick access to cash, but have no credit. However, still, you must consider the pros and cons of borrowing from your retirement.
The benefits of a 401(k) loan include a higher chance of approval and longer repayment terms. It’s a far more favorable loan option if you plan to quickly repay the money. However, please take note that not replacing the withdrawn amount on time will result in paying taxes on the funds, including a 10% penalty.
Also, the entire loan automatically comes due, and you have to pay it in full if you leave your employer or lose your job. Borrowing from your 401(k) account becomes a riskier move if you have an unstable job situation.
Consider A Home Equity Loan
You can also apply for a home equity line of credit or home equity loan if your home has equity. You can get home equity loans regardless of your credit score since your home will be used as collateral. Also, because the house secures the loan, it usually comes with a low-interest rate. Not to mention that the interest you’ll pay when getting this kind of loan is usually tax-deductible.
If you have a reliable income source and you’re disciplined, a home equity loan is an inexpensive way to obtain cash from a reputable lender even if you have bad credit. However, don’t forget that your property will be in jeopardy if you don’t pay off the debt since you’re tapping its equity.
Obtain A Collateral-Secured Loan
Lenders of unsecured loans tend to require borrowers to have strong credit scores since they don’t need any collateral. It’s their way of mitigating the risk. However, if what you’re looking for is a bad credit loan, then, it could help to secure the loan by putting down collateral.
What are examples of assets that may be accepted by the lender as collateral for secured loans? Here are some of them:
- Precious metals, like gold and silver
- Insurance policies
- Mutual funds, bonds, or stocks
- Bank accounts
- Real estate (underdeveloped property or home)
Secured loans may offer better terms or interest rates, in addition to more relaxed credit requirements. The downside, however, is that whatever collateral you’re putting down will be at risk if you’ll default or miss payments.
The last thing you want is to be placed on a financial treadmill because of being charged exorbitant rates. That being said, make sure to weigh the pros and cons that come with a secured loan before actually taking out one.
Check Out Peer-To-Peer Lending
Also known as P2P lending, peer-to-peer lending has been around since 2005. Potential borrowers will only have to post a loan listing on different peer-to-peer websites and indicate the purpose and the amount needed. Investors will, then, choose borrowers they want to fund by reviewing the loan listings. P2P is an online platform that allows borrowers to directly obtain a bad credit loan from a group of individuals or another individual rather than from an institution.
People with bad credit will often find P2P loans more readily available since an individual investor usually has much greater leeway when it comes to how factors are weighted. When compared to what traditional lenders offer, interest rates are generally lower, and lending standards are more lenient in a peer-to-peer setup. Also, a peer-to-peer lending website helps in evaluating risk by verifying the credentials of the lender for you.
If you’re currently dealing with bad credit, don’t lose hope. You can try improving your credit history little by little to obtain loans soon. While it may still take time for you to get to that stage, the good news is that there are now ways to take out a bad credit loan with instant approval, as discussed above.