More than 68 million people have bad credit scores. If you’re one of them, you know that getting approved for loans, credit cards, and even apartments can be tough.
The sooner you can increase your credit score, the better off you’ll be, but what should you do if you need a little extra money to make it through a tough time?
Traditional loans may seem off-limits, but that doesn’t mean you can’t get help when you need it. You just need to understand how to take out a loan with bad credit quickly.
Here’s what you need to know to get the loan you need, regardless of your credit score.
Understand Why You Want the Loan
Before you start looking into how to take out a loan with bad credit, you need to make sure you understand why you want a loan in the first place.
Are you looking to use the loan to improve your credit score or establish a credit history? Do you have unexpected bills you need to pay, but can’t wait until payday?
Bad credit loans are a great way to build your score and prove to banks that you’re able to make regular payments. However, they often have high interest rates and high monthly payments which can put strain on your budget.
If you’re just looking for money to get by until you get your paycheck, consider asking friends or family members for a loan. It won’t help you build your credit score, but they’ll likely be more forgiving and won’t charge you the same high interest rates that banks and standard lenders would.
Look at Your Credit Score
You know it’s bad, but you need to know your exact number before you apply for bad credit loans. Ultimately, the higher your score is, the better terms you’ll get from different lenders.
Check your credit score and make a note of the number. There are a number of free sites that will let you do this without hurting your score or charging you a service fee.
Once you know where you stand, think about how you can start improving your credit score. Making even small changes can cause your score to increase quickly and the higher you can get it before you apply for a loan, the better off you’ll be.
Look for Lenders That Specialize in Bad Credit Loans
For many people trying to understand how to get a loan with bad credit, the different types of lenders can feel overwhelming at best. There are credit unions, banks, private lenders, and even companies that specialize in providing loans for people with bad credit.
Whenever possible, try to look for lenders that work with bad credit borrowers. They’ll be able to process your application more quickly.
Larger lenders like banks and credit unions typically look for borrowers with high credit scores. This is because they want to protect their investment and reduce the risk of borrowers defaulting on the loan.
Lenders that specialize in low or bad credit loans won’t hold that low score against you.
One of the biggest mistakes people make when applying for loans with bad credit is assuming they should work with the first lender they find. Ultimately, this can end up costing you hundreds of dollars if you’re not careful.
Different lenders will view and value your credit score in different ways. What one lender deems bad, another may consider fair which could earn you a better interest rate or a higher principal amount.
The best thing you can do is shop around with multiple lenders. Get quotes from several companies and compare their terms in detail. As a general rule, it’s best to work with the lender that offers you the most money with the fewest fees and lowest interest rate.
If the quotes are incredibly similar, go with the lender you’re most comfortable with.
Only Borrow What You Need
Once you find a lender you’re happy to partner with, think about how much you really want to borrow. The larger the loan is, the more interest you’ll end up paying over time.
When in doubt, borrow as little as possible.
If you’re taking out a loan to build your credit score, borrow the minimum amount the lender will approve. If you’re using the loan to cover bills, total up those costs and only borrow that amount.
This will help you save money over the life of the loan and will help you keep your repayment amounts low.
Don’t Rule Out Using a Co-Signer
If you have bad credit, it can be tough to qualify for larger loans. Regardless of your intentions, banks see low-credit borrowers as riskier. There’s an increased chance that you won’t be able to repay the loan in full and, if you default, they could lose money.
Unfortunately, most bad credit loans get issued in smaller increments. This means you won’t be able to use them to buy a house, a car, or other large-ticket items.
If you need to borrow a larger amount of money, consider using a co-signer. They’ll essentially act as a guarantor on the loan that pledges to cover payments should you be unable to make them yourself.
Lenders will consider their credit score and income alongside yours and may be willing to issue larger loans.
Now You Know How to Take Out a Loan with Bad Credit
Applying for loans is never easy. There’s a lot of paperwork involved and you need to have a clear idea of your financial situation so you can find the best loan for your needs.
Now that you understand how to take out a loan with bad credit, do so with caution. Only borrow what you need and make a plan to repay the loan in full so you’ll never miss a payment.
For more helpful tips to improve your finances and your credit score, check out our latest posts.