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How to Get a Personal Loan, Even with Bad Credit

There are plenty of situations where it makes sense for someone to take out a personal loan. Some of the biggest reasons include large purchases like weddings and home improvements, debt consolidation, debt refinancing, and financial challenges during economic uncertainty. CNBC reports that about 22 percent of U.S. adults have taken out a personal loan.¹ Unfortunately, not everyone has good enough credit scores that qualify them for a loan when they need it most.

There are ways to get a personal loan without having a less-than-perfect credit score. You can search online to find out which type of loans are available to you.

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Here’s a rundown on getting a personal loan with bad credit.

What Is a Bad Credit Loan?

Loans are typically approved by banks when you have a sufficient credit score. NerdWallet says the minimum credit score that typically qualifies you for a loan is 610 to 640.² While having a good credit score won’t necessarily guarantee that your loan receives an approval, it certainly does help. But what if your credit score is considered too low to qualify?

This is where a bad credit loan comes into play. These types of loans are directly aimed at people with a poor credit score or no credit history. If you’re not able to qualify from a traditional financial institution, then you may have to look towards an online lender with less stringent standards for borrowers.

Alternative lenders can help you get a loan when you need it most. You’ll be able to pay back your loan in installments, similar to an auto loan or fixed-rate mortgage. But keep in mind there will likely be some restrictions or drawbacks.³ You may have to accept:

Types of Loans

Not all bad credit loans are built the same. There are different types to consider based on your needs and personal financial situation.

Unsecured Loans

An unsecured loan is one you qualify for based on your creditworthiness. No collateral backing is necessary. Rather, the lender approves a loan based on someone’s credit score and ability to pay it back.

While you may not qualify for an unsecured loan with traditional institutions, online brokers may approve you for an unsecured loan depending on its policies.⁴

Secured Loans

Not all lenders will approve a loan on creditworthiness alone. Instead, they may require the borrower to provide some collateral for the loan. If you’re unable to make payments, the lender has the right to keep the property and sell it to make up for their lost funds.

This type of loan is typically easier for people with poor credit to obtain compared to an unsecured loan.

Co-Signed Loans

You may be able to secure a loan with a qualified co-signer. This means the person you sign onto the loan with is equally responsible for the repayment.⁵ Co-signing a loan is done with a trusted relative or friend who has good credit.

By making payments on time, you could improve your credit score and potentially qualify for a future loan someday without a cosigner.

Payday Loans

When you need money fast, there’s a short-term loan you can apply for called a payday loan. Investopedia says this is when a lender will provide high-interest credit according to your income.⁶ The amount is usually a portion of your next paycheck and you will likely have to provide a pay stub when applying.

Keep in mind that this type of loan comes with high interest rates.

Cash Advances

One of the riskier methods to obtain a personal loan is with a cash advance.⁷ This is a loan using your credit card line. It typically comes with high interest charges and fees.

Unless the situation is urgent, it’s best to consider other options first to prevent digging yourself into further financial difficulty.

Bank Agreements

Some individuals on good terms with their bank may be able to negotiate an agreement.⁸

If you’re someone with bad credit and need a short-term loan, they might be able to approve a low amount as a favor. The only way to know if this could work is simply by asking. If they say no, you can move on to other options.

Home Equity Loans

Homeowners can take advantage of their property by applying for a home equity loan, which can be obtained even with a poor credit score. This loan requires your home to be used as collateral. According to Debt.org, the interest rate is low since it’s secured by the home.

While this can be an inexpensive way to borrow money, it’s important to know that your home ownership could be at risk if you’re unable to make the repayments.

How to Find the Best Loans

Finding a loan with a poor credit history doesn’t have to be impossible. There are options with certain financial institutions that specifically cater to people with low credit. You can pursue a bad credit loan that makes the most sense for your current needs.

Search online to find many online lenders that can qualify you for a loan without meeting strict credit score requirements. Compare loan terms, loan amounts, and the interest rates to help decide which loan is best. Once you qualify, make sure that your repayments are done on time to prevent further damaging your credit score.