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How to Get Low-Interest Loans Even with Bad Credit

Bad Credit Loan

Bad credit loans can be called as personal loans that help you to face financial emergencies even when your credit score is below what you and the banks would like. Many people who have bad credit scores worry about getting loans from big banks. It is because their low credit scores put a limit on their borrowing options.

The bad credit loans come in handy whenever you have a financial emergency like you car needs to be repaired or a medical bill, electricity boll, rent, tuition bill, etc, is on your head.  These loans are treated as personal loans and just like personal loans, you can pay them back in monthly installments. You can opt for a bank loan but it usually comes with a high interest rate for a low score.

However there are other options that will charge lesser interest rate.

  • Credit unions: The maximum interest rate is 18% making this a great option.
  • Family and friends: They will charge you very less or no interest rates.
  • Finding a co-signer: This will allow you to obtain a lower interest rate by using someone else’s high credit score.
  • Home equity: You can get a loan with home equity as proof.
  • Online: You can opt for getting bad credit loans with Personal Money Network or other such online money lenders who provide you with loans.

Of course there are other options like loans from retirement accounts, payroll advances, borrowing against life insurance, etc. but those should be your last resort.  

What are bad credit scores?

Credit scores represent your likeliness to pay back a loan. They range from 300 to 850. The lower your number, the less likely you will repay and vice versa. Bad credit scores range from 300-650. The people who fall in this category are considered as high-risk candidates. They also pay the highest interest rates and are the chief candidates for these loans.

The commonly accepted range is:

  • Excellent: 760-850
  • Very good: 759-700
  • Fair: 660-699
  • Poor: 659-620
  • Extremely poor: Under 620.

However, the definition of bad and good credit scores varies from lender to lender. While some lenders would not lend to anyone below 650, some market give loans to people with 650 or lesser credit score.

Credit utilization, on-time payment of your credit card bills or loans, new credit applications are the three factors that affect your 75% credit scores. If you are able to minimize these, your credit score can improve by 100 points in just six months.

How does your credit score affect you?

If your credit scored is considered good by your lender, you will easily receive a loan with a low interest rate. But, if a lender considers a person’s score bad, the loan might be rejected or be provided with high interest rates. 

The average credit score of Americans was 700 in 2018, 11 point higher than 2008. But this doesn’t mean that everyone has a credit score of around 700, right?  The people above sixty years have an average score of 743 while the youth (18-29-year-olds) only have a score of 652.

The 91 point difference costs a lot of money when shopping for auto or home loans. 

Consider taking a 30-year, $200,000 home loan. If your score is 619 or lower, you will have to pay a total of $212, 502 interest, whereas, if you stand somewhere between 760-850, you will pay $154,744.

In case of a six year, $25,000 auto loan, you will pay a total of $2924 interest if your score is above 700 while if you are below 620, you will pay $13,345.

How can you obtain a loan with bad credit?

The first step is to improve your credit score for comfortable loan offers. Make timely payments and don’t apply for new credits if you want your credit score to improve.

If taking the loan is an emergency, requesting the loan officer in your interview with them and convincing them that you will repay the loan might help.

In the interview with your loan officer, be prepared with documents to show you that you are liable. Lending institutions look for stability. So, if you can prove to them that you have lived in the same house or city, worked the same job with the same employer for several years, it will definitely help you in your appeal for the loan.

You can show your tax returns, alimony or child support, list of assets to strengthen your case. The key is to convince the money lenders that you have become responsible with your money and their money is safe with you. So, any of the documents that prove it will help.

Who provide bad credit loans other than banks?

  1. Credit unions:

Credit unions willingly provide loans to everyone regardless their credit scores. With a low credit score, a bank may charge up to 36% interest rate but a credit union will charge maximum 18% for the same amount.

  1. Friends and family:

They might not judge you over your credit score. Friends and family will not even ask for a high interest rate. But it is noteworthy that delayed payments or default in payment might cost your relationship with them.

  1. Get a co-signer:

You can jointly take up a loan with someone with a good credit score. The lender will give cheaper loan based on high credit score of the co-signer. But in such cases, both of the loan takers are equally responsible for its payback and timely payments. However, if you manage to pay on time, your own credit score will improve.

  1. Home equity loan:

There is an option to take up a loan with your home as security. In such cases, the interest charged is low since the security offered is strong, even though your credit score is low.

  1. Online personal loans:

The loans are provided by lenders that are banks but without offices. They work faster giving you loan in minutes or hours. The loan applications are free of cost and easy to fill out. Also, your low credit score isn’t the only factor that affects their decision to lend.