If you’re in need of some extra funds, but your credit isn’t in tip-top shape, you may be wondering how to get a personal loan or if it’s even possible. An ideal lender would be willing to look past your score and be transparent when it comes to lending you money. The good news is you can get bad credit loans that provide you with the cash you need even if your credit is less than perfect. Using a loan well can help you get on top of your finances and focus on building credit and paying off debts you might have. To find a loan, you’ll need to do some research and choose where you apply wisely — we’re here to help you understand how to do that.
While a personal loan can help you get your finances under control, it’s important to note that a loan may not be the answer to all your financial problems. Here are some tips to help you learn how to get a loan with bad credit.
Gather Your Personal Information
As you think about how to get a personal loan, start collecting some information a lender may ask about. Here are some important things to know that will help you get prepare to apply for a loan.
The first thing you want to do before you apply for a loan is understand your credit because it’ll give you insight into the details a lender reviews when they pull your credit. To see where your credit currently stands by check your credit score for free on Credit.com. Checking your credit score will not not affect your credit score in any way. You don’t need perfect credit, but your credit score impacts the terms and conditions you’ll qualify for. For example, bad credit loans will likely come with higher interest rates and may be issued for lower amounts.
If you see your score looking pretty lackluster, you may decide to improve it before applying for a loan. Some credit score improvement options you may consider include paying down debts, reviewing your credit reports for errors (and disputing any errors you find) and limiting the number of inquiries placed on your credit until your score rebounds. Improving your credit score before seeking a loan can help you receive much better rates.
Prove You Can Pay the Loan Back
It’s important to note that lenders will want to know you can repay the loan before they issue it, and the amount they are willing to lend often depends on your ability to repay them. It’s a good idea to show how you’ll be repaying them by offering proof of income or having a cosigner.
Talk With Your Bank or Credit Union
Next, research minimum credit score requirements for personal loans from lenders in your area. A good place to start is with the bank or credit union you currently use, as they already have an understanding of your financial profile. Something worth noting is that credit unions may have more flexible lending standards and may be more willing to offer you a small personal loan. If you’ve been at the same bank for years, consider asking the bank’s loan department how to get a loan. You may also want to inquire if your credit score would qualify you for a personal loan.
Consider Which Loans Are Best for You
Remember when we mentioned limiting the number of inquiries on your credit while you work to improve it? Here’s why: Each loan application you submit triggers an inquiry into your credit, and hard inquiries can lower your credit score roughly five points. So, when you decide to start applying for a personal loan, you’ll want to do your research and not apply for every loan you come across.
It’s a good idea to only apply for loans from a lender you trust and has lending standards you feel confident you can meet. You may be able to find the minimum credit score a lender requires for a personal loan on the lender’s website, or you can call the lender and speak with a representative. Loans for bad credit might have higher interest rates or be capped at a lower amount because lenders are much more cautious when doing business with people with lower credit.
Beware of Scams
There are plenty of online lenders promising loans with no credit check to people who have damaged or bad credit. While this option might sound ideal, be cautious. These websites may be nothing more than advance fee loan scams. According to the Federal Trade Commission, a lender not seeming interested in your credit history is a big red flag and could indicate a fraudulent website.
If you’re someone hoping to get a personal loan with bad credit, you may be a target for scammers or fraudulent lenders. Consider contacting your state’s Department of Banking or Department of Financial Regulation to see if a lender is registered to do business within the state. The Better Business Bureau can also tell you if any customers with bad credit have filed complaints against specific lenders.
This article has been updated. It was originally published November 1, 2016.