If you have bad credit, your borrowing options are limited. You might have had some financial trouble in the past that still haunts you to this day.
The problem with having bad credit is that you have to take on more debt to fix your credit. This debt usually comes with high-interest rates, making repayment that much harder. You might not even be able to get a loan from a bank if you have bad credit, making your situation even more confusing.
Thankfully, there are some bad credit loans available for people in your situation.
Bad Credit vs. No Credit
A lot of lenders put bad credit and no credit in the same boat, but it’s not necessarily the case. Bad credit means that you have a history of failing to pay your debts. Having no credit, on the other hand, signifies that you have never taken out a loan and had to pay something back.
Lenders aren’t friendly to those with bad credit or no credit, and having either could mean you have to pay high interest rates. Some lenders won’t even deal with people who have bad credit or no credit history.
Still, it’s much better to have no credit than it is to have a bad credit history. It’s quite easy to establish credit. Once you have some credit history to provide it will be a lot easier to get borrower-friendly loans.
Turning around bad credit is much more difficult than establishing a new credit history. It can take a while to turn your credit around, and it, unfortunately, means taking on more debt to do so.
If you have no credit history, you probably don’t need to use the bad credit loans we listed below. You can choose to purchase a credit card with high rates, pay off your balance every month, and start a credit history without ever incurring substantial debt.
Secured loans give the bank a reason to lend to someone with bad credit. They don’t want to run the risk of you failing to repay the loan amount, which is why it’s so hard to find a loan with bad credit. Adding collateral to the mix will make lenders more likely to give you installment loans at a better rate.
If you need a car and have bad credit, getting a used car loan is one of the best moves you can make. There is built-in collateral with a car loan. If you default on your payments, the bank can take your car. Banks are more likely to give you a loan if you have something they can repossess.
Unfortunately, not all loans have collateral. You might need a loan for an investment or another payment but can’t get one because of your bad credit history.
One way to make banks more interested in lending to you is to use your car or home equity as collateral. If you fail to pay, the bank will own a part of or all of your house.
Of course, there are massive risks associated with using collateral for secured loans – especially when you involve your house. If the investment goes south or you lose money unexpectedly, you could end up losing a lot more than some points on your credit score.
Secured loans don’t have to be this risky, though. You can use a less important piece of collateral for the loan, or choose to use your assets or investments as security.
Getting a secured loan from the bank is a risk-reward situation. The more valuable the collateral, the more money you’ll receive from the lender. At the same time, you’re taking on a more significant risk by putting up something valuable. The decision is ultimately yours, but secured loans are some of the riskier bad credit loans you can obtain.
Peer-to-peer lending is one of the options you have if you have bad credit. It’s a way to avoid rejection at the bank or extremely high-interest loans that can set you back with a few missed payments.
Instead of going to the bank, you can secure a peer-to-peer loan online through their multiple portals. When borrowers look for peer-to-peer loan options, they usually take out loans from multiple people. Instead of going to the bank, they use online platforms to secure loans from individual investors.
The investor assesses the borrower’s risk and decides whether or not he or she wants to lend the borrower their money. They can choose to finance the entirety of the loan or to only pay a portion, allowing other investors to come in with them.
Peer-to-peer lending works for both the lender and the borrower. The borrower has the benefit of securing a loan at an interest rate they wouldn’t otherwise be able to attain. The lender, on the other hand, will earn regular interest that’s usually much higher than they’ll get at the bank or in the stock market.
It’s a win-win, as long as you pay your loan balance on time. Peer-to-peer loans work as a form of crowdfunding investment for investment or purchase.
Co-Sign Your Loan
A co-signer on a loan is never ideal, but it’s necessary for many borrowers who can’t obtain a loan on their own. Having someone with good or excellent credit co-sign your loan can drastically reduce the interest rate you have to pay and may be the difference between approval or rejection.
A co-sign works when the borrower gets a friend or family member to guarantee the loan under their credit score. If the primary borrower fails to pay the loan, the co-signer will have to pay it or take the hit on their own credit score.
Getting someone to co-sign a loan with you can help rebound your credit as well. If you make all of your payments on time, both you and your co-signer will benefit from the credit increase. After a year or two of payments, you might even be able to refinance the loan under your name alone.
Having a co-signer with better credit than your own will reassure the bank that their investment is safe. It’s essential that you and your co-signer have a strong relationship, though. You’ll have to talk finances, and they’ll be on the hook if you don’t pay.
Try a Credit Union
Credit unions offer more of a personal touch than the big banks do. They’re open to hearing your story more than corporate banks, and often don’t have the same stringent restrictions on who they lend their money to.
If you join a credit union, you can sit down with a loan officer and discuss your borrowing needs. They will be much more forgiving to your personal circumstances, and can often look past poor credit history to the person behind.
The loan officer will likely approve your loan as long as you have a regular income and a reasonable debt to income ratio. You need to make a good impression, though, as they still might deny you for your bad credit history.
Credit unions use more personal elements to judge creditworthiness than big banks do. You still might not get a friendly rate on your loan, but at least you’ll have a way to finance a big purchase or investment.
In the age of the internet, online lenders offer a way for people with bad credit to obtain loans still. These lenders often don’t use the same standards as traditional banks, and sometimes don’t require a credit check whatsoever.
You’ll need a stable income for one of these online lenders to approve you, but you might find that they offer rates you can’t find anywhere else. You might even be able to borrow more money through these lenders than you can through the bank.
As is the case with anything online, you have to be careful when looking for online lenders. There are a lot of scams out there, and they could end up taking your payments and ruining your credit anyway. Do some research on any online company who offers you loans – especially if the rates seem too good to be true.
Asking Friends and Family
Asking friends and family for money is usually a last resort. Everyone has likely heard stories of relationships falling apart as soon as money is added to the equation. It’s almost always a last resort to borrow money from your family, but it might be the only thing you can do if you have bad credit.
The two most important elements when borrowing from family are official loan terms and a worthwhile cause. No one is going to lend you money if they don’t believe in what you’re buying or investing in. You need to have a no-brainer on your hands, or it’s going to be a tough time getting funding from family.
Setting official loan terms is the other precaution you should take. Get everything in writing, and pay your loan back on time.
In many ways, borrowing from your family or a friend can add more pressure than borrowing from a bank. You know the lender in this case, and defaulting on your loan means possibly ending a long-term relationship.