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Having a poor credit score can be frustrating, akin to paying a heavy price for being poor. But contrary to popular belief, a bad credit score doesn’t necessarily translate into being locked out of the financial system. If you’re in desperate need of cash, there are still plenty of avenues where your credit score is mostly irrelevant.
While credit score is crucial in deciding your eligibility and terms for a loan, having bad credit does not mean you can’t borrow money. Let us try to understand how you can get your loan approved at good rates even with a poor credit score.
How Does A Poor Credit Score Affect Your Loan Application?
When a lender reviews your loan application, they not only decide on approval, but also on the interest rate, and the amount to lend you.
A poor credit score is essentially an indicator of risk, which says that the applicant hasn’t been disciplined enough when it comes to paying off credit cards, or loans in the past, and therefore poses a substantial risk when lending.
If a lender chooses to lend money despite these risks, they often do so with higher interest rates and an amount that is small when compared to the borrower’s income, so as to minimize the risk of default. So – yes, a poor credit score doesn’t always translate to outright rejection.
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How to Get a Loan With a Poor Credit?
Getting a loan with good terms when you have a poor credit score is possible. If you need funds and your credit is bad, here is what you should do:
Check Your Credit
If you are not sure where you stand financially, take some time out to check your credit reports for the previous years to figure out what your accounts look like.
You should also know your credit scores because this score, along with other factors, affects your chances of loan approval and the terms offered.
Improve Your Credit
A small change in the loan interest rate can drastically impact your overall monthly payment. So, if you don’t require funds immediately, it is a good idea to work on your credit before applying. While it can take months, or even years to get your credit score in the Excellent range, moving up a bit can get you better options.
The first thing you can do to raise your score is to clear your existing credit card debt. Making your bill payments on time also contributes positively to your scores.
Shop Around For Lenders & Compare Your Options
When you have improved your credit score and are ready to apply for a loan, you should shop around for the best offer.
Though it is natural to accept the first approved loan when in need, it could prove to be a big mistake. Lenders may offer different terms and interest rates depending on how they assess your credit and risk. The terms and offers can vary based on their evaluation method.
If you don’t compare the options before selecting one, there is a chance you end up overpaying. Shopping around is easy today with online marketplaces that allow for seamless comparisons between different lenders, across different rates, and terms.
Boost Your Application
When you are trying to qualify for a loan or get a lower interest rate, secured and co-signed loans are great options to consider.
A secured loan lets you put your savings account, car, or any other belonging up for collateral, so that the lender can recover the money by repossessing these assets if you fail to pay back the loan amount.
A co-signed loan, on the other hand, uses the income details and credit of another person for your application and the co-signer agrees to pay the loan if you fail to do so.
Many lenders let you apply for a prequalification to determine whether you can get a loan. You can also see your loan offer with the interest rate, repayment tenure, and loan amount without hurting your credit.
This feature is particularly useful for individuals with poor credit scores as they can compare the options and find the best offer for them.
Loans That Are Virtually Guaranteed To Be Approved
If you have a poor credit score but need to borrow some funds, there are many lenders that specialize in helping people in your shoes. These companies across the country are ready to lend money to customers with poor credit.
They generally provide financing to borrowers who fulfill their criteria despite low credit scores. These loans often have high-interest rates, excessive fees, and further restrictions to safeguard the lender against defaults.
Though many of these fall under the category of ‘Payday Loans’ & ‘Cash Advances’, there have been improvements in this sector, with professional fintech companies joining the fray, and offering better rates, and quality of service, compared to the often illegitimate nature of the money lending business.
For more information on these loans, you can take a look at loans that are guaranteed according to BadCredit.
Despite the obvious barriers that remain ever present in the financial services industry, borrowers on the margins of society are increasingly finding options that suit their requirements, albeit at a substantially higher price.
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