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Having bad credit doesn’t mean you’ll automatically be denied for a personal loan. Some lenders are willing to work with you and offer personal loans to those with bad credit. Even if your application is rejected, a few things you can do before you reapply will improve your odds of approval next time.
Getting a Personal Loan With Bad Credit
Maximizing your chances of approval: To improve your chances of approval for a loan, make an effort to show lenders you’ve changed your bad credit habits through working to rebuild your credit score. Making your payments on time, even if you’re just paying the monthly minimum, is helpful since payment history is the biggest determinant of your FICO credit score. Amounts owed is the second largest FICO score contributor, so you should also work to lower your outstanding debt in relation to your credit limits, especially if you are maxed out on your credit cards. Lowering the amounts you owe should also help improve your debt-to-income ratio, another key consideration many lenders evaluate in their approval processes.
Consider, too, taking out a small personal loan a few months in advance of taking out a larger loan. Making on-time payments on the smaller loan may help convince lenders you’ve changed your ways, while also improving your credit score at the same time. Some lenders even offer “credit-building” loans designed for this exact purpose.
Preparing for the loan application: While each personal loan application differs somewhat, most applications ask you for similar information. Make sure you have the following before sitting down to complete an application:
- Personal information: name, contact information, Social Security Number.
- Educational information: highest level of education obtained, GPA, area of study.
- Identifying information: government issued identification, driver’s license or Social Security card.
- Proof of residence: lease agreement or utility bills.
- Loan information: requested loan amount, planned use of loan funds, desired loan term.
- Financial information: rent/mortgage amount, other debt obligations, credit score, recent credit history, value of assets, bank statements.
- Employment information: employer’s address and contact information, employment status, gross annual salary.
- Income verification: pay stub, Form W-2 or 1099, tax returns or bank statements.
Borrowers with bad credit should be ready to make an argument for why they should be approved. If you have any other documentation or evidence as to why you’d be a good risk for the lender to take on, such as many years of service at a stable job, prepare the paperwork relevant before you apply for a loan.
Where Can You Get a Personal Loan if You Have Bad Credit?
While some lenders won’t approve you for a personal loan if you have bad credit, some lenders should be willing to help. Among the first types of lenders to consider are local banks and credit unions. If you have a banking relationship with such an institution, they may be willing to consider your banking history rather than focusing solely on your credit score. Applying in person can also offer you the chance to explain any negative marks and may further help the lender to see why they should approve your loan.
Even if you find a local bank or credit union willing to approve your loan, make sure you compare their offer with those of competitors to find the best overall personal loan for you. Here are a few online lenders who have less restrictive credit score requirements than most.
|Lender||Minimum Required or Recommended Credit Score|
|Mariner Finance||No set minimum|
|Mr. Amazing Loans||600|
|OneMain Financial||Not specified, average score of 620|
|iLoan||Not specified, average score of 650|
Finally, don’t forget that friends and family will sometimes offer you a personal loan. Just remember, mixing friends or family and money can destroy relationships should anything go wrong with the arrangement.
Loans to avoid
When you’re desperate for the funds you need, you might be tempted to take any loan you can get. Unfortunately, many loan products for which the approval is easy have terrible terms or interest rates that could leave you in a much worse financial position. Do your best to avoid payday lenders, no credit check personal loans, auto title loans, pawn shop loans and credit card cash advances. These types of loans often come with many fees or extremely high interest rates. For instance, if a two-week payday loan has a $15 fee per $100 borrowed, the fees would essentially amount to a 391% APR.
What to Do if You’re Rejected
If you’re rejected for a personal loan and you have bad credit, you still have options. You can always try to apply at other lenders or even reapply at the same lender at a later date. However, before you try to find another lender that will approve you, consider the following ways to improve your odds of approval.
Find out why you were rejected and fix the issues
If you’re turned down for a personal loan, the lender is required to either tell you the main reasons why or tell you how to get the main reasons why you were denied under the Equal Credit Opportunity Act. Read over the list of reasons carefully and take action to address the major issues cited. Once you’ve worked toward correcting the issues, you can try applying again.
Find a cosigner
If you need a personal loan immediately, you may not have time to address the major reasons you were denied. If that’s the case, consider finding a cosigner with great credit to cosign your personal loan. Again, be careful and honest as the risk to them can be high since any missteps on your part will negatively affect their credit score as well. Not all lenders allow cosigners on personal loans, but here’s a list of a few lenders that allow cosigned personal loans.
Consider a secured personal loan
If you’re looking for a personal loan so you can keep cash in the bank, a secured personal loan may be a great option for you. Many banks allow you to use savings accounts or certificates of deposit (CD) as collateral on a secured personal loan. The collateral should also help you secure a lower interest rate. One downside to this option is that you cannot borrow more than the value of your savings account or CD.