Everyone has encountered financial difficulties at some point in their lives. Whether it’s for medical bills, payment for debts and household fees, and other expenses, a lot of people resort to taking out a loan to make ends meet. Before applying for a loan, it’s essential to ensure that your credit and finances are stable.
Factors like missed payments, bankruptcies, and high credit utilization can cause lenders to doubt the ability of the borrower to pay back the money. Borrowers with no credit score also cause uncertainty for lenders because credit scores are necessary for their lending decisions.
If you have bad credit, here are some helpful tips to remember when taking out a loan.
Understanding Your Credit Score
Before taking out a loan, it’s paramount to learn your credit score first. Credit scores determine whether you’re qualified for a specific loan and what interest the lender will charge you. A high credit score increases the chance that you’ll get approved for a loan. It also means that you’re more likely to qualify for a low interest rate. On the other hand, a bad credit score limits you from borrowing money, and also requires payments with high interest rates.
You can tell an excellent credit score from a bad one through checking out this guideline explaining two of the most popular credit scoring models.
What Is A Bad Credit Loan?
A borrower with bad credit has negative aspects to their credit history. Having bad credit means that you’re a risky borrower for lenders. As a result, you’ll find it more difficult to take out most types of loans. If this is the case, you have other options like taking out a bad credit loan. A bad credit loan is another term for a personal loan, but it’s designed for borrowers with low credit scores or those that don’t have a credit history at all.
Having bad credit means you have limited borrowing options. With a bad credit loan, you can still get funds for emergencies. Like other types of loans, you can pay back the money you borrow through monthly installments. However, bad credit loans tend to have special restrictions to ensure that the borrowers will pay back the money.
Here are 5 tips on how to get a bad credit loan.
- Find a Lender that Allows Non-Traditional Credit History
Having no credit doesn’t mean that you’re irresponsible. There are plenty of reasons why you may not have one. Certain aspects like your age, travel history, and payment methods can bring about a low credit score.
Because of these reasons, many lenders accept non-traditional credit histories. They check alternative information that can help in their lending decision, such as utility and insurance bills, rental verification, monthly internet payment, and other bank account activities.
To get a loan with a non-traditional credit history, find a lender and discuss the process face-to-face to avoid misunderstandings. You can also turn to online lenders for bad credit loans Ontario. These lenders offer an easy and convenient application process. More importantly, they look at other aspects of your credit history to determine your eligibility for the loans they’re offering.
- Consider Peer-To-Peer Loans
Social lending, commonly known as peer-to-peer (P2P) lending, is another friendly borrowing option for people with bad credit. Usually, P2P lending takes place on accessible online platforms where individuals lend and borrow money directly from each other, instead of seeking help from private institutions.
P2P lending happens when a possible borrower posts a loan listing on various P2P sites, stating the amount of money needed and its purpose of borrowing. Lenders check these loan listings, choose a borrower they want to fund, and discuss flexible terms.
This type of lending is a win-win situation for both the investor and borrower. Borrowers pay in low interest rates according to their credit score, while lenders receive high interest rates.
- Look for a Credible Co-Signer
If your friend or family member can’t lend you money, you can ask them to be your co-signer. Having a guarantor means that they’re responsible for the payments if you can’t pay for it. The interest rate will depend on the credit score of your co-signer. If your co-signer has an excellent credit score, it’s easier for you to get a loan with more favorable terms.
However, asking someone to be your co-signer can be risky for your relationship as well. There are plenty of cases where borrowers default on the loan and pass the responsibility onto the guarantor. Choose a guarantor that knows and trusts you to repay your loan on time.
Furthermore, payments made on the co-signed loan will reflect on the credit report of both parties. If you miss or delay your monthly payments, it will also be recorded against the credit report of your co-signer. Hence, ensure that your payments are on time.
- Try Joining a Credit Union
A credit union is a great choice for people that have been turned down by a bank because of bad credit. It’s a nonprofit organization that is similar to banks but owned by the members who have things in common, like living in a specific area.
Unlike banks, credit unions are more forgiving and are willing to allow borrowers to take out bad credit loans by considering other factors such as where they work and live instead of credit score.
Moreover, credit unions prefer helping other members reach their goals instead of pleasing the stockholders. They also provide counseling, financial education, and guidance to improve your credit score in the long run.
- Consider Taking a Secured Loan
Some lenders allow borrowers to take out a loan despite having bad credit as long as they are willing to secure the amount of loan with certain types of assets. Cars, homes and real estate properties, and savings or investment accounts could be put up as collateral, which means that you can lose them if you failed to pay the loans.
For example, you may sign up for a secured loan and put up your car as collateral. Once you are unable to pay for the money you borrowed, the lender will seize and take possession of your car.
Don’t let bad credit stop you from taking out a loan, especially when you’re dealing with emergencies. Although it’s true that lenders will consider you as a riskier borrower because of your unfavorable credit history, you still have plenty of options to help turn your finances around.