Is a Personal Loan With Bad Credit the Right Choice for You?

Any person out looking for a loan is faced with the same question: “What is your credit score?” For many, the answer to this question poses a huge problem and stops the lending process before it even starts. Having bad credit can certainly impact your ability to find a personal loan. However, it is not a death sentence in the lending industry. Finding a personal loan with bad credit is possible.

Facing the Truth

Many lenders these days specialize in servicing people with poor credit. However, there are still harsh realities that you will need to face in trying to find these loans. Getting a personal loan with bad credit is not the same as getting a loan with good credit. Generally, there are certain penalties that you will need to face, namely this means accepting a higher interest rate.

With bad credit, other factors such as income and collateral will also become much more important. Those with poor credit are more likely to find the answer to their personal loan needs in a secured loan than in an unsecured loan.

Why Collateral Is the Best Option

Because of the interest rate penalties exacted on those with bad credit, finding a personal loan can be a bit of a challenge without additional aid. One of the best and most favored methods of aid is to secure your loan with real property or collateral. These so-called secured personal loans are generally given to home owners or, in some cases, those who own a later model vehicle with a high resale value.

The basic principle here is to use the value of this real property to insure your personal loan. With poor credit, the lender will need this additional push to help him trust you will be responsible for your loan’s repayment.

Fixing Your Credit

For those who need a personal loan with bad credit but do not own a home, there is additional concern. Though many lenders will be willing to offer you smaller loans, finding a large personal loan with bad credit and no collateral will be much more difficult. If possible, you should instead focus your energy on rebuilding your credit and fixing any problems with your current score.

Many people fail to realize that the 3-digit credit score they are accustomed to seeing is not all there is to a person’s credit. There is also a multiple page credit report that details all of your past history in terms of loans and other financial details. By obtaining a copy of this report you can accomplish two things: First, you can see where your problems are and work towards fixing them. Second, you can check your credit report for any discrepancies or cases of mistaken identity that are pulling your score down.

Help for the Long Term

No matter the path you choose in obtaining a personal loan with poor credit, this much is clear, you need to start on a path towards financial health. This means that in taking this new personal loan, you need to be sure to repay it on time each month and work towards eliminating other debt as well. This is the only way to make finding a loan easier in the future. You will no longer need to seek only loans for bad credit.

Personal Loans With Bad Credit Exist: One Rejection Is Not the End

One of the greatest myths in the lending world is that getting rejected for one personal loan is a death sentence that spells rejection for all other loan applications. Especially in the case of those with bad credit, personal loan rejection can seem like an inevitable fate. Yet that is often not actually the case. Contrary to popular belief, lending decisions are not made based on credit scores alone. Therefore, it is essential to understand exactly what factors are at play in a personal loan application and how the reality of your bad credit can play out given different scenarios.

Make a Little Change

Oftentimes the reason for personal loan rejection is based on elements other than credit. It is possible to get this kind of loan as long as you meet all other criteria for that loan. However, that may mean making alterations to your current loan application in order to compensate for your bad credit score.

In many cases asking for less money can help you to get the loan you need. You also want to make sure that you scrutinize your credit report to make sure that the score that the lender is receiving is accurate and not a result of stolen identity or a clerical error. You also need to make sure that you meet the basic criteria for the personal loan you are asking for, which means reviewing each lender’s application carefully and providing all the information required.

Basic Requirements You Will Need

Though each lender’s requirements for a personal loan will vary somewhat, there are a few hard and fast rules you need to know. As long as you meet all of these basic requirements it is likely that you can find a personal loan from someone.

• You need to be at least 18, a legal adult, to get a loan without a cosigner.

• You need to have a stable source of income that is sufficient to cover the monthly loan payment you will owe. With bad credit, income is even more essential.

• You need to be a U.S. citizen or qualified non-citizen. The requirements for citizenship will be clearly articulated in each loan application. You also need to prove your citizenship status.

If you find that you are lacking in one of these categories, chances are that your loan application was denied based on these factors, not your poor credit history. There are ways to get around the first two requirements if you can find a cosigner.

Why Credit Matters

Though many lenders will still offer you some sort of personal loan with bad credit, it is a mistake to think that credit scores are completely superfluous. They do matter when it comes to two aspects of your persona loan: the amount offered and interest rates.

With bad credit, getting a personal loan of a substantial amount, such as $25,000 is not really possible. However, you may be able to attain a loan of $5,000 or even $10,000 depending on your income. Make sure your expectations are realistic. Second, though interest rates are at historic lows, your bad credit will impact the rates offered to you. Be prepared to pay interest rates quite a few points higher than average, again according to just how bad your credit score is when you get your loan.

There Is Hope for Bad Credit

Do not assume that just because you have bad credit a personal loan application will be denied or continue to be denied. There is hope that you can get a personal loan with bad credit as long as you look at the other factors involved and make sure you meet them.

Small Personal Loans Can Be a Wiser Option That Saves Money

To most people, the task of raising money to pay for improvements or consolidating a range of debts comes down to getting a small personal loan from their bank.

Of course, simply being able to gain access to such funds makes life that bit easier, but there is more to it than getting a chance to cover the unexpected expenses, or maybe a major project, in one go. An unsecured personal loan can actually save a considerable amount of money too, making it a wiser option to alternative payments methods, such as a credit card, for example.

Getting a small loan for personal use is not usually considered such a major trick. In fact, it is a very common practice, especially for unexpected expenses, like a hospital fee or medical expenses, or even periodical luxury purchases, such as a vacation to Europe or the Caribbean.

But while getting such personal loans is nothing strange, the full extend of the advantages of a small loan goes beyond these things. There is much more to it than simply accessing a convenient source of funds.

Make Significant Savings

The fact is that a small personal loan can provide a way to make major savings. This is because small, short term loans can come at quite low interest rates. It is not unusual, for example, for such a loan to come at less than 6 per cent APR, which falls quite some way below the usual credit card rate.

Obviously then, small loans for personal use can be less expensive than the arguably more convenient credit card payment. In fact, over the course of a year, for example, repaying the loan could save several hundred dollars. Even for larger sums, an unsecured personal loan can outdo an equity home loan, saving thousands of dollars.

Loan Terms

Of course, the only way to make sure that real savings are made is to get the best interest rate possible. It is important then that loan options are explored, but competition is so high in the market that it is not difficult to find small personal loans at low rates. This is especially true on the internet, where smaller lending companies do what they can to attract more business.

Also, keep in mind that small loans for personal use tend to be below USD 10,000, with anything above that is considered a more significant loan deal. It is a different matter if the loan is secured by collateral, where a significantly larger sum can usually be secured against property equity or a vehicle.

Finally, the duration of these unsecured personal loans is also a factor, with the longer the period of the loan the greater the amount of interest paid. By getting a relatively short term, say 3 years for example, even more savings can be made.

Other Uses for Small Personal Loans

Of course, there is no shortage of uses for these loans with the whole concept behind small loans for personal use being that the funds can be spent in any way the borrower sees fit. In this respect, they are not the same as auto loans, for example, which are issued for specific purposes.

The great advantage of unsecured personal loans with open ended purposes is that the funds can be left in a bank account and delved into as and when necessary. So perhaps some will go to medical expenses and some to educational expenses.

What matters is that, in the long term, money is saved and those savings can then be spent on other things too.