10 Ways To Get Loans For People With Bad Credit
There is a stigma that people with bad credit don't have a lot of options when it comes to taking out loans. The truth is, especially in today's day and age, there are a lot of opportunities for people who don't have good credit. Here are some suggestions on getting loans for people with bad credit:
Know Your Credit Score And See If It Can Quickly Be Improved.
It is shocking to find the number of people who don't take advantage of free credit reports, and even more shocking those who realize that some of the negative items on their report hurting their scores are mistakes. Get a copy of your credit report, know your score and find out if any errors can be updated to boost that FICO score up for you. In the meantime, make sure to pay down high credit card debt balances and continue to make your debt and bill payments on time. Certain loans have a credit score requirement, so boosting that credit score may be all it takes to qualify for that type of loan.
Use a Co-Signer For Your Loan.
If you need a loan, a popular option among lenders is to lend to you if you have a co-signer for the loan. Co-signing a loan with someone who has good credit helps your chances of getting a better deal on your loan than you could achieve on your own. Be careful when choosing to co-sign with another person, however. If you default on that loan, the lender will not only go after you but your co-signer as well, so use this option if you are sure you can keep up with your loan payments and agreements.
Apply to a Credit Union.
While credit unions typically operate much as banks do, they are nonprofit organizations that tend to be on a smaller scale. Because they are nonprofit and generally work on a smaller scale than larger bank organizations, they are more willing to work with people with low credit scores and can offer lower fees with lower mortgage rates and interest rates. Whether it's getting a personal loan or a mortgage loan, credit unions may be able to help you more and provide lending options bigger banks might not be willing to make.
Avoid Predatory Lenders.
Predatory lenders are lenders who make it nearly impossible for their borrowers to ever repay the interest plus the full amount of the loan off. They charge an incredibly high-interest rate for their loans that make it very hard for people in difficult situations to ever get out from under their new loans. With so many low credit loan options, save yourself the heartache and void payday loans and no-credit-check-required lenders. There are a lot of scams out there for mortgage assistance too, so do your research and trust your instincts.
Build Up Compensating Factors
Work on bulking up your compensating factors for your loan. These factors include having a more substantial down payment than the loan may be asking for, having a low debt-to-income ratio, proof of steady income, paying comparable rent payments as you would mortgage payments and more. Bad credit does make you appear risky to many lenders, but showing you have compensating factors can improve your ability to get a loan. Speak with a lender to see what type of compensating factors would be helpful with getting a loan.
Look into Soft Credit Check Lenders
We mentioned avoiding quick, no-questions-asked payday type lenders. A better option for a loan is “soft credit check” lenders. Soft credit check lenders still look at your credit score and will see that it is a lower score than you typically want it to be, but the good news is they also factor in other items outside of just your credit score. They also look at things such as proof of steady income, regular employment and information regarding your bank account for the past three months time. These loans still may not provide you with the best interest rates and options, but they are a much better option than predatory payday or title lenders.
Take Advantage of Mortgage Loans
Several mortgage loan options are catered to first-time homebuyers and people with lower credit scores. FHA home loans, VA loans, and even rural USDA home loans offer competitive interest rates for bad credit and don't require as heavy of a down payment as traditional home loans.
Use Peer-to-Peer Loans
Peer-to-peer lending (P2P) allows you to borrow and lend money without having to use a traditional bank. This newer debt financing enables borrowers to connect with investors through an online marketplace. The perk with this is you avoid the bank, but be aware you will still be assigned a risk category based on credit, which will result in the chosen interest rate of the loan.
See if You Qualify For Down-Payment Assistance or Grants
There may be down-payment assistance or Federal Grants that you may qualify for when looking to purchase a house. Look at the HUD (U.S. Department of Housing and Urban Development) website to see if there are any available local state programs in your city or county.
Take Out a Secured Loan
A secured loan is typically easier to get since it provides less risk to the lender. If you are rebuilding your credit, a lender may offer you a better option with a secured loan than with an unsecured loan. A secured loan tends to be a little riskier for the borrower, however, since you are pledging an asset as collateral for the loan if you ever default on it. So be confident it is a loan you can repay.