Personal Loan Options for People With Bad Credit Scores

With the financial crisis created by the pandemic, many people are finding themselves in need of an influx of cash to get back on their feet. If your credit score is less than perfect, it may be harder to get that loan.  However, it is not impossible.  You have options.

Unsecured vs. Secured Loans

All loans fall into one of two types, regardless of what the loan is for.  The first type, a secured loan, is a loan that uses some type of physical property as collateral.  The most common types of collateral are homes, land and vehicles.  Your credit history matters, but you’re more likely to get approved for this type of loan because there is something of value securing this type of loan.  Should you default on a secured loan, the lender would simply take the collateral property and sell it to recoup their loss.

The second type, the unsecured loan, is harder (but not impossible) for those of us with less than perfect credit to secure.  Should you default on an unsecured loan, the lender will not have anything to repossess to repay the loan. So, if you have poor credit, the lender will be review your application carefully before extending credit.

Unsecured Loans with Poor Credit

Obviously, when you search online, you’ll find many options for different credit levels.  Even if your credit is poor, lenders are still competing for your business – the terms will be different and the interest higher, but there are options. Just be careful, not every loan that you find online is as good as the ad says it is.  Read the fine print.  Verify that the lender actually exists.  Do they have a phone number?  Physical address?  What are the reviews?  Check with the Better Business Bureau before you sign anything.

Carefully Review the Fine Print

Remember, the lender views you as a greater risk if the loan application if for an unsecured loan, so they may be adding other details to the loan to benefit them. The biggest thing that lenders will do to protect them when lending you money if you have bad credit is to raise the interest rate, so be sure that you compare rates before you finalize the loan.  And, most importantly, never get a loan that you’re not going to be able to pay back!  Defaulting on a loan will make your already bad credit score get worse. If you can pay it back and are responsible with your finances going forward, then consider your options and pick the type of loan that works for you.

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.

 

Think You Don’t Need a Credit Card?

You know, I read an interesting study the other day about Millennials and credit, and in the study, it stated that Millennials utilize personal loans at a rate of 98% higher than the previous generation, and they open auto loans at a rate that’s 21% higher than the previous generation, but they also open far less credit card accounts, averaging two less credit cards than their parents.  At first glance, those credit card statistics sound pretty good, don’t they?  But does it really make sense not to have some credit readily available on credit cards?

While a personal loan looks good on paper, what with the lower interest rate and all, there are drawbacks that you might want to consider before you decide not to open any credit card accounts.

First and foremost, available credit on a credit card is instantly available. Unlike a personal loan, which can take a couple of days between the time you apply and the time the money is deposited into your bank account, the amount of available credit that you have on a credit card is available at all times, day or night, regardless of where you happen to be at the time (ever had an emergency when you’re on a road trip – a personal loan doesn’t work at 3:00 am when you’re 300 miles from home).

Secondly, with a credit card, you can actually pay the balance off every month if you so choose and never pay a penny’s worth of interest.  That’s not the case with a personal loan.  Even though the rate on a personal loan is usually substantially lower than a credit card, you’ll still pay interest on the principal every month.  Over time, even that lower interest rate will add up.

And finally, even though many personal loans are reported to the major credit bureaus, not every company does, and what’s reported won’t show available credit, so your credit score may be impacted by not having any readily available credit (that’s about 30% of your credit score).

So, what should you do if you’re trying to limit your reliance on credit cards?  The answer is pretty simple – get at least one good credit card, use it sparingly, and pay off the balance every month!  That way, you’ll have the benefit of instantly available credit when you need it, but you can opt to pay no interest at all just by paying the balance in full when it’s due.

How a Personal Loan Works

What is a personal loan and how does it work?

A personal loan, or signature loan as it was once referred to, is typically an unsecured loan, meaning that you simply sign your name and the money is yours.  You do not have to post any type of collateral, such as the title to your car or the deed to your home. Unlike a home mortgage or automobile loan, there are generally no limitations placed on how you spend the money that you’ve borrowed, meaning you can use it for larger home purchases (new furniture, carpet, etc.), car repairs, debt consolidation, Christmas shopping, or even that tropical vacation you so desperately want to take!

Personal loans are an excellent way to borrow money if your creditworthiness is such that you can gain the approval needed to borrow the sum of money for which you have applied. Once you have been approved and actually receive the funds from the lender, you will be required to pay the total amount of the loan back, with interest and any applicable loan fees, usually in regular installment payments over a period of time. Since the loan amount, interest rate, and fees can vary widely from lender to lender, it’s wise to do your homework and shop around for the best deal.

At FreshStartCardOffers.com, we recommend personal loans – not only do they offer some of the options around, but checking to see if you qualify usually won’t hurt your credit score!

 

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