Is It Possible to Get a Loan With Bad Credit History
If you ask any random person what their biggest problem is, chances are it’ll be related to finances. Money is the plague of modern man, and at some point we all struggle with it, no matter how hard we work.
Many people are resorting to investments because they started to realize that living paycheck to paycheck just won’t cut it anymore. The problem with deciding to take that step is the fact that you’re going to need some money in the beginning, which isn’t always easy. Your best choice is usually trying to get a loan, but a few complications come with that option. Whether you’re trying to get a loan to start a business or to pay off your mortgage, bad credit history will always stand in your way. The question is, can you still get a loan in that case?
Can you get a loan with a bad credit history?
It’s possible, yes, though it’s definitely not easy. Having bad credit history doesn’t mean you’re a bad person. It’s a financial strait that many people find themselves in and it’s a tough jam to get out of. You need a loan to get out of that closed loop, and there are sources from which you can get one, even if you have bad credit history.
Friends or family
Yes, your first approach to getting a loan with your bad history is going to friends and family. It doesn’t always work, but if it does, you should definitely take advantage of this window because chances are your friends and family won’t charge you high interest rates, if they even did. You need to come up with a sound payment plan that ensures that they will get their money back in a period of time on which you’ll both agree. It’s very important that you make them trust that you’ll pay all the money back in a specific period of time, so they’d feel comfortable lending you the money you need to get out of your financial strait.
Now that the easy option is out of the way, is it possible to get a bank loan or one from a lender with your bad history? It isn’t easy, but it’s definitely possible. You’re going to have to do some things, though, to qualify for a loan. These are some tips and things you need to keep in mind because they might just get you that loan you desperately need.
1. Get acquainted with your finances
You can’t possibly hope to get a loan unless you know the ins and outs of your personal finances, down to the tiniest details. Get acquainted with your accounts, what’s in them and how the cash flow has been moving over the past few years. You can start doing that by checking your credit reports, which is a crucial first step because that’s how you start figuring out your credit score. If there are any special comments in your report, you should try reaching out to whoever put that remark to have them remove it before you apply for a loan –– because it does make a difference and comments like these will be taken into consideration by the lender.
It’s also very important that you learn your credit scores as well as your debt to income ratio, because that is how you can start figuring out a plan to improve your score history to get back on your feet successfully.
2. How you can improve your credit history
Now that you’re well acquainted with your credit history, it’s now time to start applying certain strategies to improve it. The first thing you have to pay attention to is the payment history. Yes, a lot of factors are taken into consideration in your overall score, but payment history is the most crucial and delicate one. So, you must make sure you pay the upcoming payments on time. Forget about what happened in the past, and focus on the future ones to ensure you never miss one.
Contrary to popular belief, closing old accounts is not always a good practice. Why? Because those old accounts that you’ve already paid off open can help increase your credit history length, and it could give you a lot more solid grounds to stand on when you’re applying for the new loan.
One thing you have to be careful about is your credit limit. It is always best that you keep the ratio between your debt and your credit limit reasonable. The less that ratio is, the better, naturally. This is important because it’s a very bad sign if that percentage is high, and it would show many lenders that you’re not very wise when it comes to your finances and it might sway them from giving you a loan.
Speaking of credit, you should never open new credit accounts unless you’re 100% certain you could take care of them and pay them off on time. Randomly and excessively opening credit accounts shows lenders that you’re not very responsible, or worse, it might make them think that you’re running a scam. This is why it’s very important that you keep this to a minimum, and only open new accounts in the case of emergencies, and if you’re absolutely sure you could handle them.
3. Understand your options
After doing your best to improve your credit score, you next want to start looking for a suitable lender that can give you what you’re looking for. But there’s one more thing you need to do before taking that step, and that is understanding your options when it comes to loans. The two most common types are unsecured and secured loans.
Unsecured loans might be a bit problematic if you have a bad history, because they basically charge you a higher interest rate because of your situation –– and that is if you managed to obtain the loan in the first place. An unsecured loan is basically one that you don’t need collateral for. You can use them to cover emergencies or take care of another debt you found yourself in.
Secured loans, on the other hand, are protected by a collateral like home equity or any other assets. The good thing about this is the fact that they come with lower interest rates, but you do need to have a collateral to get a secured loan in the first place.
4. Find a co-signer
This is one of the best strategies that could help you land a loan. A co-signer is someone with a healthy credit score who would sign the loan with you, which will make your chances of getting it exponentially better, not to mention the fact that it’ll also probably land you a lower interest rate as well. Your chances are always better with a co-signer, and if you have someone willing to help you with that you should definitely get them to do it because it’ll make a lot of difference.
5. Find the right lender
Now that everything’s in order, you need to start looking for the right lender. This step will require a lot of research on your end, and it’s important that you be diligent with it because it makes all the difference in how this entire process will pan out. Don’t just go for the first loan that approves you; wait until you look at other options so you could have a clear picture.
You want to find a lender that would give you the personal loan you need for the lowest interest rate possible, and the best loan term. Each will have their own policies and evaluation process to determine just how much risk comes to lending you money, because loans for those with bad credit are associated with a risk factor for most lenders and they don’t hand them out like that. You need to keep all those points in mind because you might need the money urgently, for instance. So, do your homework and research the hell out of every possible lender you can find online, and you are going to find plenty.
There are other options that you can resort to if you want to get a loan with your bad history, but they might come with higher interest rates in some cases. For instance, in title loans, lenders rarely care about your bad credit, and you could easily use your vehicle as collateral to get some money, but it’s a short term loan and the interest rates are usually a bit higher. So, keep that in mind if you’re considering getting a title loan. Another good option for is credit unions, which particularly specialize in offering loans to people who have a bad credit history, and you can easily find local options to help you get out of your jam. The great thing about credit unions is the fact that they have an interest ceiling which applies to everyone –– 18%. That is a great percentage and it’s around half of what a bank would offer you for a similar loan with your bad history.
There are other options that you can resort to if you want to get a loan with your bad history, but they might come with higher interest rates in some cases.
What the cons of loans with bad credit are
1. Higher interest rate
You can get a loan even with your bad history, but you’re going to have to pay higher interest rates than usual because of your special situation. Banks and lenders usually take advantage of your need for money –– and to be honest, they’re trying to be on the safe side, considering your bad history and the fact that you’re at risk –– so they impose higher interest rates, which means you’ll pay a lot of money in the long run. You need to keep that in mind before applying for a loan with bad history so you don’t get surprised when it does get approved.
2. They take time
Some of these loans with bad history could take quite some time to get processed, a bit longer than your average loan. Sometimes it’s because they’re double checking your history and thoroughly going through your finances or any other details, but it might not be the best option for you in case of emergencies.
You have to make sure you’ve read every detail of your agreement with the lender, because sometimes there are extra fees or penalties that you might be subject to without even knowing it. Ask if there is a loan origination fee or any other hidden fees, and whether or not they have penalties for being late and just how much those penalties are. There are even some lenders that impose a penalty if your payments are made by check! So, it’s important to carefully check those details because the last thing you want in your situation is to pay any extra money that you can’t afford to spare.
4. The risk involved
You might get asked to include a collateral in the agreement like your car or house, which is a bit risky because if you failed to pay your installments, you might lose the car or the house.
5. Plenty of shady lenders
You might come across quite a few shady lenders here and there, which is something you need to be really careful about. Some are not licensed and don’t have approval to offer that kind of service, so make sure that you’re dealing with a licensed lender in your state before you pay any money so you don’t end up being scammed.
6. The temptation of short-term loans
Most short-term loans with your bad history can be too much to resist sometimes. Title loans, paydays, and all the likes might seem very tempting, but they come with a lot of baggage. Their interest rates are higher and they cost you more money in the long run, so that’s definitely something you should keep in mind.
As shown in this article, it is possible to get a loan with bad history. Is it perfect? Definitely not, but neither is your situation. You’ll have to compromise either way to get out of the mess you’re in, but remember to be patient and wait until you get several other offers so you could compare between them and choose the most suitable one for you.