With the global economic downturn, more people in the U.S. are seeking financial assistance than ever before. Although it can be difficult to apply for a loan with a bad credit history, nearly everyone can apply for it on a normal day.
If you want a loan even with a bad credit rating (ratings below 629), there are various types of loans offered by lenders.
Before we go ahead, it is important to mention that one common trait among most of these types of loans is that they are mostly costly and have a smaller pay back time than the conventional loans offered to individuals with good credit rating. While this might put some people off, here are the types of loans one can get with a bad credit:
Types of Loans for Bad Credit
There are three main types of loans which an individual can access even with a bad credit rating. They include:
1. Personal Loans
Most lenders offer personal loans to the individuals with poor credit rating which can be gotten after being backed by collateral such as a car, house or otherwise.
Some of the companies that provide personal loans with low credit scores include OneMain, Financial and Upstart. However, they have relatively high interest rates which may fall between 18% and 35.99% annual percentage rate (APR).
2. Auto Loans
If you're seeking an auto loan with bad credit, some lenders specialize in working with high-risk borrowers. However, like other loans, these often come with higher rates. It’s advisable to shop around and explore dealerships that offer in-house financing.
3. Federal Housing Administration (FHA) Loans
Federal Housing Administration loans are usually for people with bad credit who want to buy a home (mortgage). These loans are government-backed and allow borrowers with credit scores as low as 500 to 579 qualify with a 10% down payment, while those with a score of 580 or higher can qualify with just 3.5% down.
How to Get a Loan with Bad Credit
To increase your chances of getting approved for bad credit loans, there are several steps you can take:
1. Check Your Credit Report
Before applying, you should know your credit status and report any discrepancies. You can access your credit reports for free from agencies like Equifax, TransUnion, and Experian. Fixing inaccuracies can improve your credit.
2. Compare Lenders
Not all lenders have the same requirements for borrowers with bad credit. Some, like LendingPoint and Best Egg, accept credit scores as low as 600. Exploringand comparing rates can help you find the option that best suits you.
3. Consider a Co-Signer or Collateral
Adding a co-signer with a good credit score or offering collateral can improve your chances of approval and potentially lower your interest rate.
How to Fix Your Credit Rating
Improving your credit score will give you access to better loan terms in the future. Here how to improve your credit rating:
1. Pay Your Bills on Time
Payment history accounts for 35% of your credit score so paying at least the minimum balance on time each month can improve your rating. If you earn a low-income, there are still strategies you can follow.
2. Reduce Your Debt
Lenders check debt-to-income (DTI) ratio before approving loan applications. By paying off existing debt, you’ll not only lower your DTI but also improve your credit score over time.
Final Thoughts
Even if you have a bad credit rating, you can get a loan to fix your everyday emergencies. That is where bad credit loans come into play - you can follow the tips provided above to get the loan that will provide the financial help you need.