Personal Loans

Personal Loans Online for Bad Credit

Borrowers with bad credit and poor credit history don’t usually pass the credit check imposed by traditional lenders, such as banks and credit unions, resulting in a denied loan application. This puts those with bad credit at a significant disadvantage when trying to secure a personal loan, thus preventing them from covering any unexpected expenses or financial emergencies. 

If you’re struggling with bad credit, you’re most likely familiar with this situation. Fortunately, we have a solution, and in this article, we’ll discuss personal loans for bad credit, how to get one, what things to consider when choosing a loan product, and what are the viable alternatives to personal loans for bad credit. 

How to Get a Personal Loan with Bad Credit

Personal loans for bad credit are offered by traditional lenders, such as banks, credit unions, and online lenders. The former two usually have a minimum FICO score requirement of 580, while online lenders also grant loans to borrowers whose score falls below 579. 

The application process depends on a specific type of personal loan for bad credit, but it mostly comes down to filling out a loan application, going through the approval process, and receiving the loan funds in your checking account. 

The loan application process is pretty straightforward, and many lenders offer online applications. This adds a layer of convenience, allowing you to complete your application from the comfort of your home. 

Once you submit your application, the lender will review your information and contact you with the loan offer, assuming that your application has been approved. The important characteristic of personal loans for bad credit is that your credit score isn’t used to establish your loan eligibility. 

Since they’re specifically aimed at individuals with bad credit, these loan options are also marketed as no-credit-check loans. However, the lender might still perform a soft credit check and use that information to formulate loan interest rates and loan terms, with more competitive rates and terms reserved for borrowers with better credits. 

It’s really important to read through the loan agreement before signing, as it often contains the necessary specifics, such as the loan amount, origination fee, repayment terms, annual percentage rates (APRs), late fees, prepayment penalties, minimum credit score requirements, the type of loan, and the amount associated with your monthly payments. 

Once you sign the agreement, the lender will deposit the bad credit loan funds into your bank account. Some smaller loans, such as payday loans, can be secured in cash. However, these come with exorbitantly high interest rates and APRs. 

What are Personal Loans for Bad Credit

Personal loans are loans both short-term and long-term loans in which you borrow a lump sum and repay the loan according to the repayment terms you agreed to.

These loans are characterized by two primary defining characteristics: they’re aimed at individual borrowers rather than businesses or legal entities, and they’re flexible in terms of their use, meaning that the lender doesn’t impose any limits on how you use the loan.

This distinguishes personal loans from other loan products, such as mortgages, which are specifically used for real-estate purchases, or HELOCs (home equity lines of credit), which are specifically used for home renovation and home improvement projects.

It’s worth noting that personal loans are mostly unsecured personal loans, which means that they’re not backed by any collateral that lenders could use as risk mitigation. This means that your eligibility for the loan is based on your creditworthiness, dictated by your credit report, which is an issue if you have bad credit. 

What Makes Up a Bad Credit Score?

Your credit score is the reflection of your financial responsibility and your creditworthiness from the lender’s perspective. The better credit you have, the more likely you are to repay your debts and loans promptly. 

Traditional financial institutions, such as banks and credit unions, perform credit inquiries and look at the borrower’s credit history to determine whether or not they qualify for a personal loan and its associated fees and costs. 

The most common credit score scale in the US is the FICO score, a consolidated score that provides insight into how consumers repay credit obligations, including accounts held by other lenders. It is made up of five major elements, each of which is assigned a different weight, but the biggest element is your payment history. 

Payment history accounts for 35% of your total FICO score and indicates that you’re paying your credit bills on time. Missing a payment by just a few days can have a significant impact on your payment history, though the more delinquent the payment, the worse it’s considered. 

The total amount owed accounts for an additional 30% of your FICO score and includes mortgages, credit card balances, auto loans, and bills in collections. Additionally, your credit utilization ratio, which compares how much you have available to borrow against how much you owe at any given time, also matters, and it’s best kept under 30%.

This is important to understand, and fixing these two factors alone can have a massively positive impact on your credit score. 

Why Does Credit Score Matter?

If your credit score doesn’t determine the eligibility for bad credit loans, you might wonder why the credit score matters. It’s still used to determine appropriate interest rates and repayment terms. If the borrower’s credit score is 670 or higher, that’s considered good credit, and they’re more likely to get approved on their loan application. 

If the borrower’s FICO score is in good standing, the lenders will offer lower interest rates, better repayment terms, and even higher loan amounts. However, the opposite applies to borrowers with bad credit; not only do they receive loan offers with higher interest rates and less favorable terms, but they’re often denied on their loan applications. 

If your FICO score is below 580, you have bad credit, and lenders perceive you as an unreliable borrower. Of course, you can still apply for a personal loan, but unless the loan product is specifically aimed at individuals with bad credit, you’re less likely to be approved or more likely to receive a loan with higher interest rates and less favorable terms. 

However, there are some alternatives to personal loans for bad credit, which might feature more favorable terms and rates, and we’ll discuss them in the latter section of this article. For now, let’s discuss what things to consider when choosing a personal loan for bad credit.

Things to Consider When Choosing a Personal Loan for Bad Credit

Personal loans for bad credit aren’t a novelty, and with so many offers on the market, finding the one that suits you the best isn’t an easy task. You have to shop around for different loans and lenders, which takes time, and that’s assuming you know what you’re looking for in the first place. Here’s a breakdown of some of the most important factors to consider: 

Interest Rates

However, for those who aren’t familiar with what to look for in a personal loan for bad credit, the very first thing you should look for is a more competitive interest rate and APR for the type of loan you’re trying to obtain; a short-term or an installment loan. 

More competitive rates will allow you to make more affordable monthly loan payments, and you’ll pay less in total cost of the loan, which should be your priority. However, this might not be so easy, especially since many lenders calculate the risk per applicant, granting specific personal loan rates and APR based on their assessment. 

This is why credit score matters; besides signaling your creditworthiness, it also dictates the rates and terms you’ll receive. Due to this, it pays to improve your credit score in any way possible before applying for a bad credit loan, as it will effectively lower your interest rates and APRs. The difference might be marginal, but it compounds over time.

Loan Amount 

The next thing you should consider is the loan amount, which depends on the type of loan and the lender. Personal loans for poor credit usually range anywhere from $100 to $50,000 depending on the loan type (whether you’re securing a payday loan or a long-term installment loan), though some lenders offer even more than that. 

It’s important to find a lender that can lend you as much as you can comfortably pay, and most lenders offer personal loan online calculators that can help you determine what the total loan costs and a recurring monthly installment would be.

Application and Approval

Different lenders usually have different application requirements, but some universal items include submitting the necessary documentation and going through the approval process. They might impose their minimal qualifying standards, such as a minimum credit score requirement or a minimum loan amount. 

It’s best to pick a lender that’s most likely to approve your application. Fortunately, most lenders offer pre-approval, so you can find out whether you qualify for a specific loan. 

Repayment Terms and Funding Speed

Loan terms usually range from 12 to 60 months for personal loans or more, depending on an alternative. Choose a lender with repayment terms that work best with your budget, and remember that shorter terms mean higher monthly installments. 

As for funding speed, most lenders take about a day to process the loan and deposit the payment into your bank account, but some lenders offer same-day and next-business-day funding, while others might take several days to process the loan. This can be inconvenient if you’re in dire need of cash, in which case you might want to take a look at small personal loans.

Alternatives to Personal Loans for Bad Credit

Unless you’re facing a financial emergency in which you need cash and fast, you might also want to consider some viable alternatives to personal loans for bad credit. 

• Lines of credit: Alternatives usually include lines of credit, which are great for covering credit card debt since they generally have lower interest rates but usually imply borrowing against some kind of equity, like with home equity loans. 
• Secured loans: Secured loans are also a viable alternative, as you’re borrowing against personal property, such as real estate, savings accounts, and personal valuables. The presence of collateral significantly minimizes the interest, but they’re risky for borrowers since defaulting means losing the property. 
• Credit union loans: These loans come with really low rates and more flexible terms compared to traditional banks, but they do require membership to obtain the loan. They’re great as debt consolidation loans due to their favorable terms and flexibility. 
• Payday alternative loans: PALs are offered by credit unions to bad-credit borrowers as an alternative to costly payday loans, which usually have an APR of up to 400%. PALs, on the other hand, are capped on both fees and interest that can be charged, which makes them affordable. 
• Family or friends: Borrowing from family and friends can be a viable financing option if formal lending options are unforgivable due to your credit. However, it’s important to treat this agreement formally, with clear terms and written agreements, to avoid personal conflict.

Summary

Personal loans for bad credit are a fantastic financing solution for your financial needs, regardless of whether you need a small amount of quick cash or a more substantial amount for debt consolidation. However, in today’s modern age of instantaneous goods and services, shopping for a loan for bad credit, going through several application processes, and simply comparing different products is too time-consuming, especially if it ends unfavorably. 

We understand that and have come up with an effective and time-saving solution for your financing needs. Just head over to our website, fill out a loan application, and provide us with the necessary information. 

We’ll share your application and the necessary information with trustworthy lenders in our wide lender network. This way, you save time shopping around for a loan while simultaneously applying to several lenders, which will contact you with their loan offers if you’re eligible for the loan. 

This also means that you’re more likely to receive several different loan options, which will allow you to choose the best one for your financial needs. If you need funding, don’t hesitate to contact us.