Taking out a personal loan can be a smart move if you’re looking to get out from under high-interest debt or cover an unexpected expense.
4 Important Questions to Consider When Applying for a Personal Loan
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The Top Lenders that Work with All Credit Scores
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LendingTree
Loan amount: up to
$50,000
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Credible
Loan amount: up to
$100,000
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GuidetoLenders
Loan amount: up to
$40,000
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LoansUnder36
Loan amount: up to
$35,000
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Bad Credit Loans - What You Need to Know
Bad credit isn’t a deal-breaker if you’re looking for a loan. You can still find lending houses that will provide you with a variety of loans, but you may face issues that people with better credit don’t worry about as much.
Your credit score is compiled from your financial history, including loans you took out in the past and whether or not you paid them back on time. It also takes into consideration your credit card habits and outstanding debts. Typically anything under 580 is considered a bad credit rating, and loans given to people in this credit range tend to have a 28.64% APR on average.
Not having debt or any delinquent loans doesn’t guarantee good credit. Financial institutions like to see that you are part of the system and that you have taken out and repaid loans in the past. Having credit cards and regularly paying them off is a good way to accrue good credit.
A bad credit score can mean higher interest rates as well as shorter payment terms and you may be required to put up valuable collateral such as a car or house title to secure the loan.
The bottom line, even if you have bad credit, you can still get a loan, but there will probably be some stipulations. If you'd like to get a loan with better terms, you should take these steps toward fixing your bad credit.
What Rates to Expect
A bad credit score is typically seen as an indicator of high risk, therefore lending companies often assign a higher - or even much higher - interest rate to borrowers with bad credit.
| Credit Score | Average APRs |
|---|---|
| Poor (300-639) | 28.64% |
3 Top Loan Companies For Bad Credit
1. LendingTree
- Loan Amount: $1,000-$50,000
- APR: 4.79% - 35.99%
- Loan Term: 3-180 months
LendingTree allows borrowers with bad credit to review loan offers from a wide range of lenders in order to compare and find one that works for them. Applying for a loan on LendingTree is quick and simple, and it doesn’t require a hard credit pull, so you don’t need to risk hurting your credit score even more. Because there is an extensive network of lenders, finding one that will lend to someone with bad credit is not difficult.
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2. GuidetoLenders
- Loan Amount: $1,000-$40,000
- APR: 4.93% - 35.99%
- Loan Term: 24-84 months
GuidetoLenders doesn’t originate loans, rather it puts users in touch with lenders who will compete for their business. It is often a solid option for people who have been turned down by other lenders because of bad credit scores. It does not charge any fees of its own and you are not obligated to pay anything if you want to just shop around for loans. The application is also known for being simple and straight-forward, and even people with bad credit can find lenders willing to give loans payable over 24-84 month terms.
Pros and Cons
Installment loans for bad credit borrowers come with a whole host of advantages, with one of the main ones being the opportunity to get a loan with a relatively long payment period. However, personal loans for people with bad credit also come with their drawbacks, such as higher interest rates and inflated fees.
| Pros | Cons |
|---|---|
| Typically spread over a relatively long payment period | Usually have higher interest rates |
| Can help you consolidate debt | Often include higher fees |
| Can help you repair your credit score | Can require putting up collateral |
| Cost-effective way to cover late fees |
Getting a Personal Loan with Bad Credit: Understand Your Needs
If you’re considering applying for a loan despite your bad credit, there is some much needed due diligence to be done. First, you need to ask yourself: Why do I need this loan? Is it for a purchase you've had your eye on but you can still put off for a while? Or is it something you need to purchase right now? If you can put off your purchase for some time, you may want to consider it as adding a loan to your existing bad credit may put you into an even greater hole of debt with bad credit. If the loan you need is immediate, you should check out the best types of personal loans for you.
Discover the Options: Taking a Loan Despite Your Bad Credit
If you need to take out a personal loan as soon as possible, overriding your current bad credit, there are various lending options available to you:
- Credit unions - These are member-owned nonprofit organizations that generally offer lower fees than banks
- Home equity loans - These take out a line of credit on your home and can put you in a tough situation if down the line you are unable to pay it back
- Peer to peer lending - These are peer lender websites that will let you post your need for a loan. Independent investors will then decide whether or not to lend you money after weighing the impact of your bad credit.
- Co-signers -This is someone who will sign on a loan with you as a show of trust, promising to take responsibility in the event you can’t repay the amount. When you ask someone to be a co-signer, make sure it is someone you can trust and that has your best interests at heart.
If none of these options are viable for you, remember that you can always go to your bank for a loan. Just be aware that most major credit lenders and institutions are hesitant to lend out money when you have bad credit. Choosing an alternative route may prove to be more successful in the end.
What to Check Before Applying for a Bad Credit Loan
Some companies that provide online loans for bad credit aren’t entirely trustworthy. Be cautious, do some due diligence, compare personal loans for bad credit and keep in mind that if a deal sounds too good to be true - it probably is. Reputable industry leaders can be found in our in-depth reviews.
After you’ve decided which company you’ll apply for a loan with, make sure to start gathering all the necessary documents. Some companies require extensive tax documents, as well as employment information and bank statements. With bad credit, you may need to apply at multiple places, so make sure to organize everything you need in order to save time. If you get rejected, ask the company for an explanation so you can adjust accordingly with the next application.
What to look for:
- APR rate on loan
- Is collateral needed, and how much?
- What is the payment schedule?
- Which documents will you need, and will a failed application affect your credit score?
Pay close attention to the APR, which can be affected by the loan purpose, amount, term, and your credit rating. For instance, if you took out a $10,000 loan at 4.99% APR with a term of 3 years, you would owe 36 monthly payments of $299.66.
It may sound obvious, but make sure not to sign any loan agreement until you have reviewed the terms of the loan, especially if you put up collateral. Make sure you know how much the interest will be and what penalties you will face for delinquent payments before going forward.
Once you get your loan, consider it a top priority to make your loan payments on time. This will help you repair your bad credit and help you when applying for loans further down the road.
Personal Loan APR
The APR calculation on personal loans will vary depending on your lender but the APR on these loans is lower than what you would typically receive from a payday or short-term loan – usually starting at 10% and capping at 35.99%. It is not ideal to owe any money but if you require a loan, then a personal loan could certainly be a viable option.
APR rates mentioned include associated fees.
Full repayment for the loans displayed range between 61 days to 180 months.
Representative example: assuming a loan of $10,000 over 60 months at a fixed rate of 3.1% per annum and fees of $60.00. This would result in a representative rate of 3.3% APR, with monthly repayments of $180.80, for a total amount paid of $10,848.00.
Alternatives to Bad Credit Loans
Secured credit cards
Applying for a secure credit card can be a way to get some quick cash at at more favorable rates. Secured credit cards tend to have low limits, around $1,000 or so, but due to the typically lower interest rates and origination fees, they can be a better option if you need extra money.
| Pros | Cons |
|---|---|
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Co-signer loans
If you have a friend or loved one with good credit you can ask them to co-sign a loan with you. However if you don’t make your payments, your co-signer will be on the hook for the payments, and their credit could suffer as a result.
| Pros | Cons |
|---|---|
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Short term loans
Short term loans are generally unsecured personal loans that have repayment terms of 3 years or fewer and are a good option if you’re short on cash now, but won’t be in the near future. A short term loan might be a good fit if you don't want to risk your house, car, or other assets as collateral on a long term loan.
| Pros | Cons |
|---|---|
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Line of credit
Usually associated with home equity loans, a line of credit is a flexible loan that you can access as and when you need it. Once you're approved you’ll be allocated a line of credit and be allowed to borrow up to that amount. You can either borrow all the money upfront, or withdraw it on an as-needed basis.
| Pros | Cons |
|---|---|
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Payday loans
Payday loans can offer you immediate cash with few restrictions, but should be avoided if possible. Almost half of payday loans aren't ever repaid, creating an endless cycle of loans and the types of lenders that offer them are usually very unreliable. The main disadvantage is the exorbitant interest rates, sometimes as high as 500%, so only take one out as a very last resort.
| Pros | Cons |
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How to Rebuild Your Credit Score
If you are looking for ways to fix your bad credit, there are some simple steps you can take in order to improve your situation and find that financial security you want. One of the first things you should consider is increasing your credit limit by reducing the amount of credit you are actually using.
Another way to rebuild your credit score is to take out a loan. If you get a bad credit loan with a reputable lender and you make your monthly payments on time then you will have the chance to improve your credit score and even make money on your loan.
Improving your financial situation is actually easier than you think. It's important to be realistic, budget correctly and exercise patience. You may need to make some sacrifices for now, but in the long run you will be able to improve your credit score and enjoy the benefits it comes with.
* LightStream Terms and Conditions:
APR Disclosure: Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
Payment Example: Monthly payments for a $10,000 loan at 4.99% APR with a term of 3 years would result in 36 monthly payments of $299.66.
Same-Day Funding Disclosure: You can fund your loan today if today is a banking business day, your application is approved, and you complete the following steps by 2:30 p.m. Eastern time: (1) review and electronically sign your loan agreement; (2) provide us with your funding preferences and relevant banking information; and (3) complete the final verification process.