How to Borrow Money When Your Credit is Absolutely Shot

Most people believe that when an individual has a high credit score, then the lending world is his or her oyster, but what if your credit score is on the low side? When it comes to how to borrow money when your credit is shot, it’s easier than you think. Options range from bad credit installment loans to peer-to-peer lending platforms.

It’s Easier Than You Think to Borrow Money When Your Credit is Shot confirms that while it’s important for you to understand what factors impact your credit and the best ways to manage it, you have more options than you might think when you need to borrow money.

It is possible to rebuild your credit. To do so, consider obtaining a secured credit card. This is an account that comes with a limit that you establish by securing it with funds ahead of time. The secured credit card company will hold this money in a savings account while giving you the ability to charge up to this amount on a credit card. As you make on time payments, you’ll improve your credit history. Until it’s high enough for you to qualify for traditional loans, you can turn to one of the following options.

Borrow Money Online Through an Installment Loan

Due to an oppressive regulatory landscape, many short-term lenders now permit you to borrow money online through an installment loan. This type of loan comes with the benefit of giving you a longer repayment term. Traditional payday loans must be repaid by your next pay cycle while installment loans allow you to repay them over several months to a year or more. When you borrow money this way, the lender will usually deposit the funds into your checking account automatically and within a business day or two.

Peer-To-Peer Lending is a Growing Trend

When your credit is shot, it’s possible to borrow money through peer-to-peer, or P2P, lending. According to, potential peer lenders will have access to your credit score. Because of this, you’ll likely receive a riskier rating that comes with a higher interest rate. Along with this, you’ll still need to convince lenders to give you money, but your chances are better in this arena than they are in more traditional lending ones.

You may be able to use a cosigner to receive approval for this kind of loan when you have a less than fabulous credit score. In this situation, lenders are more willing to lend to you since it decreases their risk. If you fail to repay the loan, then the lender will turn to your cosigner for the funds, so be responsible and don’t leave friends or family members in a financial lurch when you borrow money.

Request a Home Equity Loan

Since the housing market has been improving over the last few years, those who own their homes may be starting to build equity in them. If you fall into this category, then consider requesting a home equity line of credit. Lenders tend to approve these types of loans for those who have low credit scores because the equity in the home secures it.

There is a big downside to home equity loans, which is that you are putting your home at risk if you’re unable to pay the loan back. In this case, the lender would have the power to foreclose on it.

Contact Family Members or Close Friends for a Loan

Asking people you know for a loan comes with a number of pros and cons. If they agree, pros include not having to worry that your credit score will be affected as well as possibly paying less interest. When you borrow from family or friends, you won’t have to request the loan, decreasing the stress of wondering whether you are approved nor will you have to deal with origination fees or late fees.

The cons of turning to those you love for money include the risk of damaging your relationship with them if you’re unable to pay the money back on time. Also, when you owe an acquaintance money, the relationship could feel awkward until you’ve repaid him or her. If you decide to take this route, consider making the loan a formal one. To do this, sign a contract that includes how much interest you’ll pay the person and when you’ll repay the loan.

You could use a service like LendFriend, which helps you create loan documents that are legally binding. The site will even send or collect payments.

Payday Loans Remain a Viable Borrowing Option

While pricey, payday loans remain a viable option when you need to borrow money. It’s best to turn to a payday loan lender for a short-term loan that you know you’ll be able to repay in a week or two. Also, make sure that you know the terms of the loan before taking it out. This includes knowing when the money is due and the total cost to borrow the funds.

A study completed by the Consumer Financial Protection Bureau found that borrowers roll over more than 80 percent of payday loans. Do what you can to avoid becoming a part of this statistic. Rolling over payday loans becomes expensive, and it can quickly snowball.

Seek Financial Institutions that Lend to People with Low Credit Scores

A personal loan is another way to borrow money online, but when your credit score is low, you will need to seek financial institutions that cater to this situation. Companies that lend to those with poor credit scores have more flexible approval requirements than traditional lending institutions. However, they will still take your credit score into account when approving you for a loan.

If a local credit union exists in your area, be sure to check with it about a personal loan. These financial organizations usually offer flexible loan terms in addition to lower interest rates than other types of lenders. In fact, the maximum annual percent rate for a personal loan from a credit union is 18 percent. You can also set one up with repayment terms that are comfortable for you. This means that you can choose to repay the loan in as little as one year or in as long as five years.

Making Sure Your Loan Features Fair Terms

Before taking out any loan, make sure that the lender isn’t giving you a bad deal just because your credit score is less than stellar. You deserve to borrow money that comes with fair fees and repayment terms. Even when your credit is shot, there are still ways to obtain a loan. Installment loans, home equity loans and money borrowed from people who you know are just a few options. To read more about the best ways to borrow money online, visit the Personal Money Store.