Emergency expenses like a sudden medical bill or unexpected car repair can hit us at any time. That won’t be a problem if you have enough savings or an emergency fund to cover such costs. But if not, getting a loan might be your only option. Before approving a loan, lenders consider several factors like your credit score, credit history, income, etc. A score between the range of 300 to 579 is considered poor. It could mean that you have maxed out your credit cards, incurred missed or late payments, or have a short or no credit history. A less-than-ideal credit record can prevent you from getting loan approvals. It’s because lenders can view you as a more credit risk. But that doesn’t mean you don’t have any chance. Below, we will look into the best places to take out a loan with bad credit.
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A credit union may look similar to conventional banks or card issuers in several ways. But it’s an excellent option if you’re looking to get a loan with bad credit. Since credit unions are non-profit organizations and controlled by the members, they don’t need to pay for Federal and most State taxes. So, they are more flexible and willing to accept borrowers with bad credit than banks would.
They also have a maximum cap of an interest rate of 18%, so they can’t charge you higher than that. Plus, poor credit isn’t the end deal at credit unions. Besides the credit score, they will consider your entire financial history. That means you can still get a better loan term.
But the unions will require you to be a member before getting a loan. While some may set strict requirements, the best credit unions often have lax rules for membership. Don’t hesitate to shop around and understand the terms before signing up for anything.
It’s very easy to take out a loan from online lenders. These lenders often don’t have a physical office and conduct transactions online. They are more likely to extend and approve a loan than banks and credit unions, even if you have bad one or nothing. Some lenders even offer online loans no credit check.
Apart from credit scores, they may use other relevant data to evaluate your creditworthiness, such as employment or debt-to-income ratio. Most online loans are unsecured, so you don’t need collateral to get approval.
The primary attraction of online lenders is their fast application and approval process. You can fill out their forms online, and they can give you decisions right away. Once you get approved, you’ll have the money in your account in a few hours or days.
Peer-to-peer lending (P2P) is another excellent option for borrowers with bad credit. You’ll need to complete an online application on a P2P lending platform. It will assess your application and determine the appropriate interest rate based on your creditworthiness.
Once you get approved, the platform connects you directly to investors willing to lend you the money. They will send loan offers, and you get to choose the loan with the best terms.
The score remains a factor in P2P lending. But individual investors of the platform have more freedom in deciding. Therefore, you still have a better chance to get approved for a loan even with less-than-stellar one.
Home Equity Financing
You can also use your home’s equity to take out a loan. Even with bad one, you can get approval as the house itself will serve as the security or collateral for the loan. Lenders will view you as a less financial risk. It’s because when you default on the loan, they can foreclose your home to recover the amount you owed.
The amount you can borrow may also be limited, and the interest rate might be higher. Still, if there are no other options and you need a significant amount, it may not hurt to tap into your home equity as long as you can repay it on time.
If you have valuable items like jewelry or electronics, you can also get a loan from the pawnshop. The staff will reassess the item’s value and condition and determine whether to offer you the loan or how much they will lend you.
The checks are also not necessary since the approval of the loan depends on the item you bring in. Note that the average amount of loan you can get from a pawn shop can go around $75-$100. Failure to repay it on time won’t impact your score. But you will have to pay the interest along with the loan to retrieve the item.
Having bad credit doesn’t mean zero chance to acquire financing. But you may not get as good deals as those with excellent credit scores. It’s also important to note that poor credit won’t only affect your ability to borrow money; some landlords and employers may look at them too. As much as possible, make your payments on time to maintain a good credit standing.