Rejected for a Bad Credit Loan? Here’s Why.

When the COVID-19 pandemic shut everything down a couple of months ago, so many people were laid off, furloughed, or let go from their jobs that the unemployment rate quickly rose to depression era levels.  Unfortunately, most people were unprepared for the financial emergency that came from going without a paycheck for days, weeks, and in some cases, months.  Small business owners were forced to close businesses.  Hourly and salaried workers were laid off.  Cash quickly became hard to come by for so many of us.

Monthly BudgetFast forward a few weeks and the pandemic is now showing signs of winding down, and it appears as though things are beginning to open back up.  If you’re one of the lucky ones, and you’re being called back to work, then you’ll be able to start putting your life back together sooner than many.  And one of the first areas you should address is your financial life.

If you missed payments on any of your monthly bills, you’ll soon be asked to pay up.  That mortgage or rent payment that was deferred?  Yep, it’s now due.  Utility bills?  Also due.  If fact, money may be even tighter than it was when you were self isolating at home, simply because all of those bills that you couldn’t pay before are now due and payable.  So, how will you cover it?  One option that you have, even if your credit is bad, is to get a loan to cover the extra expense, consolidate bills, or simply to just catch up.

But, if you have bad credit, what’s to keep you from being rejected?  Here are the most common reasons that people are rejected for loans, even those marketed for people with bad credit:

  • Bad Credit:  Keep in mind that, even though a loan is marketed as being for people with bad credit, not everyone with bad credit will be approved.  Your credit score may be too low to qualify, especially if your reason for requesting the loan is not what the lender is expecting.  Is your low credit score due to a financial emergency, such as loss of employment or illness?  Perhaps you got carried away with your spending habits when you were younger?  Have you been making an honest, continual effort to repay those bills for a period of time?  If so, lenders are more likely to work with you.  But, if you have a history of defaults, late payments, etc., that demonstrates a lack of financial responsibility, chances are you will continue to be rejected until you can prove that you have changed and have begun working on repairing your credit damage.
  • No Credit:  Unfortunately, a lack of credit history demonstrates nearly as much risk as does a poor credit history.  Without a credit history, lenders have no track record to use to determine if you will pay them back.  So, if you have no credit history, you should take some steps to build one.  Start with a bank account, then get a couple of credit cards that you use sparingly and pay off each month.
  • Lack of Collateral:  Some loans require the use of collateral to secure the loan.  Collateral, such as a home or a vehicle, is pledged against the amount of the loan. Essentially, you are showing the lender that you have property that could be sold to get you the money you need, but you are simply requesting a loan instead.  Of course, if you do not repay the loan, the lender will simply take your car or home as repayment.
  • No Income:  Unemployment will not always prevent you from getting an unemployment loan, but those are special loans.  Fast loans for people with bad credit are not unemployment loans. For a fast money loan you need to show to the lender that you have a means to pay back the loan and that requires a steady source of income.

There Are Options

Remember, it’s not the end of the world if you’re rejected.  There are still options.  You can borrow from a family member if you’re desperate, or find a cosigner with better income and better credit to help you qualify.  Keep looking.  The internet is full of lenders.  If you look long enough, you may find someone who will work with your specific circumstances.  And if not, keep working on your credit!  You will eventually get there.


Loan Options for Really Bad Credit

If your credit has ever been really bad, or if it is now, then you know how hard it is to get any kind of credit.  Even worse, you’re so convinced that you can’t get credit that you don’t even try, but there are options, even for those of us with really bad credit.

Let’s talk about some of those options:

  1. Payday Loans:  Payday loans are probably the most expensive type of loan that you can get.  The interest rates are typically significantly higher than traditional loans, and you must repay them on the due date (your next scheduled payday) or there will be steep fees added to the account.   That said, there are times when you absolutely have to have the money right now, and as such, a payday loan can be a life saver.
  2. High Interest Rate Loans:  There are loan companies that will work with you, but beware of the interest rate that you may be charged, pay attention to any fees, and make sure you can actually make the payments before you sign on the dotted line.
  3. Title Loan:  If you own your vehicle outright, a title loan can be a less expensive loan option, especially if your credit is less than perfect.  Interest rates on title loans tend to be lower than unsecured loans.   In exchange for the cash that you need, the loan company will place a lien on your vehicle while you make the required payments.  Once the loan is paid off, the lien is released.
  4. Home Equity Line of Credit:  If you own your home, and you have some equity in the home, then you may be able to borrow against the equity that you have in your home, but be sure that you can make the payments on this loan, as you are taking a big risk with this type of loan.
  5. Borrow Against Your Retirement Account: Again, this is not a favorable option because of early withdrawal penalties and tax repercussions associated with borrowing against your retirement account. However, in the event that you do have to borrow against your retirement, make certain that you opt for a loan and not a straight distribution from your account.
  6. Cosigners and Relatives:  Although this is the least favorable option, you can approach a relative to either loan you the money that you need or cosign along with you on the loan.  However, the cosigner’s credit will likely be affected by the joint loan and they are held responsible in the event that you don’t make the payments, so if at all possible, I would avoid this option.

As you can see, you do have loan options, even with really bad credit – the main thing is to be certain that you choose wisely, and once you’ve made your choice, that you pay the loan back as soon as possible!