Yes, Virginia, You Can Still Get Personal Loans with Bad Credit
Personal loans for bad credit might not be the same as a visit from Santa Claus, but getting a loan could make the difference between a happy Christmas and a disappointing one. A recent article in Reviewjournal.com provided some practical advice for getting loans even when you have bad credit. The article recommends several appealing ways to get financing when you need cash.
Personal Loans for Bad Credit Are Available if You Research the Options Carefully
Some of the available options in today’s economy for getting bad credit personal loans include borrowing from family or friends, applying for a loan from a peer-to-peer lender, joining a credit union, using your home’s equity and getting a secured loan by using other available assets as collateral. Here’s how these options work:
- Borrowing from Friends or Family
Sometimes, a friend or family member is willing to offer a loan if you’ve been turned down by banks and other financial institutions. However, you risk damaging your relationship with the lender if you can’t repay the loan. If you do choose this option, it’s’ important to put the agreement in writing and treat your obligation just as diligently as you would any legal debt.
- Getting a Secured Loan
If you own assets–such as a boat, stocks, business or valuable personal items–you can use these goods as collateral to secure your loan. The lender holds the asset until you’ve completely repaid the loan and interest charges. These loans often have lower interest rates because the lender doesn’t take any risk. However, you reap the benefits of paying off your loan by raising your credit score just as if the loan weren’t secured.
- Pay Down Your Debt
Debt-to-income ratio is one of the key things lenders consider when they study your personal bal loan application. If you lower your debt as a percentage of income, you can qualify more easily for a loan and for a lower interest rate.
- Peer-to-Peer Lending
Peer-to-peer lending, which is popular in the United States, United Kingdom, Australia and China, is a kind of online lender who arranges loans using capital from everyday investors without using banks as intermediaries. You stand a stronger chance of being approved for one of these loans–especially if you can provide sound reasons or a compelling emotional appeal. Interest rates are usually lower, and approval rates are higher. In the last quarter of 2016, P2P lending ignited an increase in personal loans according to P2Pfa.info.
- Cosigned Personal Loans
People with bad credit often get approved for loans by getting someone to cosign the application. The lender will take information about income, credit history and debts for both you and the consignor. You might qualify for a lower interest rate if the consignor has excellent credit. If you pay off the loan as agreed, both you and consignor will receive a credit boost. However, failure to pay will negatively impact both parties.
- Joining a Credit Union
Credit unions are owned by the membership, so you have a better chance of getting approved when you’re a member. These lenders are often more willing to loan money to members of the community. Joseph Holberg, CEO of Holberg Financial, recommends joining a credit union to increase your chances of getting bad credit personal loans. “However, be aware that if you just go to a credit union seeking a loan, you might not have as good of a chance of obtaining it,” warns Holberg. “Credit unions rely on getting to know you as a person, so having a previously established relationship — such as having a checking and/or savings account — with one can often be beneficial.”
- Personal Lenders
Independent lending is often available for people with low credit scores. These lenders often operate online and offer bad credit personal loans. Some of these companies offer debt consolidation loans and personal loans for bad credit for important reasons such as home improvements. Many of these lenders are willing to consider other evidence of fiscal responsibility than just credit scores–such as life insurance, ability to repay, savings, retirement accounts and other factors.
Better Options: Personal Loans for Bad Credit by Using Home Equity
Blog.credit.com reports that one of the better options for landing a loan if you have bad credit is to leverage the equity in your home. Home equity lending is making a comeback, and rising home values could mean that you have more equity in your home than you realized. Although home equity lending hasn’t reached the level it attained before the mortgage crisis, a stabilizing economy and rising real estate prices are giving lenders more confidence to lend money based on home equity.
Home equity is the value of your home less what you currently owe in mortgages. For example, if your home is valued at $150,000, but you still owe $100,000, then you have $50,000 in equity. Typically, you need at least 30 percent equity to qualify for a home equity line of credit. The downside to this type of loan is that you risk your home if you can’t make the payments for both mortgages. However, it’s also possible to consolidate and refinance your home so that you have only one mortgage to pay.
Getting a Personal Loan: Best Practices
Regardless of which lending option you choose, the best practices for getting and managing personal loans for bad credit include determining if you really need the loan and whether you can afford to make the payments. Your interest rate affects your monthly payments dramatically, and you could easily get caught in a cycle of debt if you’re not careful. The better your credit score, the lower your interest rate will be. For example, Bankrate.com reports the following average interest rates based on creditworthiness:
- Poor credit: 25.00 percent APR
- Fair credit: 10.66 percent APR
- Poor credit: 4.29 percent APR
- Poor credit: 4.29 percent APR
It’s obvious that the best strategy for getting any kind of loan is to improve your credit score. You can do this by paying down your debt and getting a better debt-to-income ratio, making your payments on time, communicating with your creditors when you can’t pay immediately and consolidating high-interest debts
When Nothing Else Works
In today’s paycheck-to-paycheck culture, even high wage earners are often bedeviled by poor debt-to-income ratios and unavoidable circumstances that result in poor credit scores. People who don’t have many resources or savings could find it almost impossible to secure personal loans for bad credit. That’s why short-term loan options such as payday loans, installment loans and automobile title loans have become so popular in the past two decades. Even though these loans carry high annual interest rates, the loan period is only about two weeks.
Most responsible families can afford a one-time short-term loan under these circumstances if the alternatives are late fees, bounced checks, higher interest rates and service interruptions with reconnect fees. Millions of families across the United States–and around the world–rely on short-term lending options when they need emergency cash.
Yes, Virginia, Santa Claus can still arrive on time even for people with bad credit who need a personal loan. Exploring alternative methods of funding, paying a higher interest rate and leveraging your assets to back your loan are just a few of the many possibilities. Find out more about personal loans for bad credit at the Personal Money Store.