How to Get Loan with Bad Credit Score
Is it possible to get loan with bad credit? The answer is ‘Yes’. It is actually possible to get loan with bad credit if you know how to go about it. The reason why some are frustrated in getting loan is because they are ignorant of the steps they need to do. Bad credit is not the end of the world. This does not mean that I am encouraging bad credit. It is very important to take care of your credit so that you won’t find yourself in a situation that you will not be able to enjoy some privileges that come with having good credit.
If your credit is already bad, you should start taking steps that will help you repair the credit. Just as you must have experienced, getting loan with bad credit can be very frustrating at times. However, that does not mean you will not be able to get any loan. The problem is that, you may have limited options. You may not be able to get traditional loans that are popular with people that have good credit. Also, you may need to prepare your mind to pay high interest rate on the loan if you are granted. Except it is absolutely necessary, it is not actually good to seek for loan if your credit is bad. If you first take time to repair your credit, you will realize that you will be able to get your loan at a cheaper rate. Even, you may be able to get the loan from the same place they have declined your application before. However, if you really need the loan, below are options you can take advantage of:
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- Use Your Home Equity: If you are a property owner and you have built considerable equity on your home, you can use it as collateral for your loan. In fact, with this, you can still get the loan at a very good interest rate. But you need to know that this is very risky. If you are unable to pay back the loan, you will be putting your home in jeopardy. That is, you can lose your home in the process. Your lender can sell your home to recover his money, both interest and principal. In case the price of your home is more than your loan balance, you will be paid the balance.
- Borrow from Credit Union: Borrowing from Credit Unions is another way of getting loan with bad credit. Credit Unions usually lend money to their members at good interest rates. Because they are people of similar interest and ideology, they understand the nature, characters and habits of their members. Therefore, they may not necessarily depend on credit rating to make decisions on who can borrow money or not. However, you may need to be a member of the Credit Union before you can be able to access loan from them.
- Peer to Peer Lending: Peer to peer lending is not strange to many people again now. If you search the internet, you will come across different peer to peer lending institutions advertising different types of loans such as instant payday loans and personal loans. Some will even be more specific by advertising loan with bad credit or loans for people with bad credit. These institutions understand the problem that people with bad credit usually have in accessing traditional loans. They are out to bridge the gap by connecting people that in need of loans with investors that are willing to lend out their money. When you apply for loan on the platform of peer to peer lending institutions, they will help send your requests to different investors. If your profile meets their requirements, you will be offered the loan. The good thing about peer to peer lending is that, if one investor is not willing to lend you the loan that you desire, you can easily find another person that will be ready to do so.
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- Approach Friends and Family Members: This is one area that people usually overlook. If you have good character, your family members and friends should be able to trust you with their money regardless of the status of your credit. If you want to increase your chance of getting loans from friends and family members, you can offer to pay them interest on the loan. In fact, this would be a win-win approach. They can get a better interest rates from you than what they would have earned if they put the money in their savings account. Also, you will be able to get the loan at cheaper interest rates than what financial institutions would have charged you. If you plan to get loan through this route, you should endeavour to keep to the terms of the loan. It is better that the loan terms are documented and assented to by the parties involved. Failing to keep to the terms of the loan may bring rancor or bitterness among the family members. Therefore, if you know you will not be able to pay back the loan, it may be better not to take the loan at all. At least, this will help you sustain peaceful relationship or co-existence among your family members. On the other hand, if you are able to pay back the loan, it won’t be difficult for you to approach them in the future when the needs arise
- Let Someone Cosign the Loan: In case your family members don’t have the money to lend you, you can actually approach them to cosign the loan for you. The person should have good credit and be willing to cosign the loan. What cosign means is that, the person is taking the responsibility of paying back the loan in case of default. The cosigner is actually putting both his credit and finance on the line. Anything that happens to the loan will be reported in the credit reports of both the borrower and the consigner. Therefore, you owe your lender and the cosigner the responsibility of making prompt payments every month. Your action can build or damage the credit of the cosigner. If you have someone to cosign your loan, your bad credit becomes irrelevant. You will be assessed based on the credit rating of your cosigner.
- Make Down Payment: Depending on the type of the loan you are trying to get. If you are planning to get auto or mortgage loans, you can increase your chance of getting the loan with bad credit if you are able to make considerable down payment. This will reduce the risks that the lender will need to take. Also, you should be able to demonstrate that you have stable income that will enable you to make your monthly payments.
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After getting your loan, you can actually use the same loan to build good payment history. If you make your monthly payment regularly, this can help you repair your credit. Even, if you have had history of late payments in your credit report, its effects on your credit will begin to reduce as you continue to make prompt payments. It is better to set your monthly low and ensure that you keep to it than to set repayment amount that is too high which will be difficult for you to pay.