There’s a lot you can do with a personal loan. You can use it to cover emergency expenses, pay for important home improvements, or consolidate your debts — among other options. You can start looking for the easiest place to get a personal loan and come up with multiple options, and that’s to your advantage as the borrower.
When shopping around, it’s important to consider what’s available to you in terms of how much you can borrow, how long you can take to pay it back, and how much you’ll pay in interest.
This can be a frustrating process if you have bad credit. Interest rates may be higher than you expected and you might struggle to qualify. Don’t give up — the more you know, the more likely you’ll be to find a loan that works for you.
What Personal Loan Types Are There?
The biggest difference among personal loans is whether they’re secured or unsecured.
A small percentage of personal loans are secured, meaning that you need to offer collateral to qualify. Collateral is a valuable asset, like a car or boat, that the lender can seize if you fail to repay the loan. Offering collateral reduces your overall risk to the lender, and that usually translates to more attractive rates and lower interest.
Most personal loans are unsecured. The benefit of this situation is that you don’t have to put your possessions at risk, but the downside is that you’ll have to have a better financial profile and good credit to qualify.
Borrowers with poor credit might have better luck qualifying, and getting better rates, with a cosigned loan. Under this model, you ask someone who has good credit and stable income to sign the loan agreement with you. In doing so, they agree to repay the loan if you don’t.
Where Can You Look for a Personal Loan?
The terms of your loan will vary not only by loan type but also by what type of lender you go through. It’s important to understand your options, especially if you’re looking for a lender that will approve a personal loan with bad credit.
Banks are often the first sources that people think of when they want a loan. You’re likely to enjoy lower rates as compared to credit card rates, but you might get an even better interest rate elsewhere.
Peer-to-peer is a lending paradigm that appeals to many people with bad credit. The basic concept is that you fill out an application on a peer-to-peer lending site, and the site matches you with private investors that accept your credentials.
If you apply with a peer-to-peer lender, you’ll still have to show that you can afford to pay back the loan, but the requirements may be less strict, and the minimum credit score may be lower. You may also find that the interest rate is lower than a bank might quote you for the same loan.
Credit unions are popular sources for personal loans, especially among people who have less-than-ideal financial profiles. The difference lies in the fact that a credit union works on a nonprofit model, serving its members rather than stakeholders. Because its primary goal isn’t to drive a profit, unlike with a bank or even an investor, a credit union can afford to be more forgiving.
With a credit union, you’re likely to see lower fees and interest rates than you’d get from a bank because the credit union doesn’t depend on those fees to make money. The biggest advantage for someone with bad credit, though, is that a credit union is generally more willing to sit down with someone and work out affordable loan terms. If you get turned down elsewhere, a credit union might be able to help.
The only caveat is that to borrow from a credit union, you typically have to be a member. Fortunately, many credit unions offer membership to anyone who lives in their home region, and some major employers and organizations have their own credit unions.
The Easiest Place to Get a Personal Loan With Bad Credit
No single lender is the overall best for everyone. But, in general?
Your best option is a credit union. This is especially true if you’re able to meet with someone face-to-face, whether in person or virtually; you can explain your financial situation and potentially work out an affordable arrangement.
Your next best bet is a peer lender. If you don’t belong to a credit union and can’t join, look for a peer lender. There’s a bit more flexibility than you’d get with a bank and you’ll have more options to choose from.
Things to Think About
Even if you have bad credit, you’ll still have choices to make when settling on a lender. Here’s what you need to consider.
1. Interest Rates
Different lenders will offer you different interest rates, but there are some general commonalities. You’ll probably see higher interest rates for unsecured loans than secured loans, and borrowers with bad credit will see higher interest rates across the board.
2. Income and Employment Status
If you have an unstable income or employment history, you might have a more difficult time finding a personal loan. You’ll want to look for a lender that has more flexible qualifying requirements such as no stated income personal loans.
3. Credit Score
If you have bad credit, check a lender’s minimum credit score first. This will help you to narrow the field, especially if you’re far outside of a given range.
4. Terms and Conditions
When lenders accept applications from people with bad credit, it’s not always because they want to give people the benefit of the doubt. Don’t immediately trust fees or interest rates that are suspiciously high or suspiciously low, especially if it seems almost too easy to qualify.
In many cases, a personal loan isn’t your only option for getting the cash that you need. Homeowners may also have the option to tap their home equity, without having to qualify for a home equity loan or line of credit. With a sale-leaseback program where you sell your house and rent it back, you can convert your equity to cash without ever having to submit your credit score or income.
A personal loan can get you out of a difficult spot or help you to achieve a big life goal, but navigating the process isn’t easy. Especially if you have bad credit, it can be a struggle to get approval. Look for a lender that will work with you to come up with a plan. Whether you need personal loans to pay off debt, student loans, funds to finance your business or even get a home improvement loan with bad credit score, there are other lending options to choose from.