Bad Credit Loans - What You Need to Know

Bad credit isn’t a deal-breaker if you’re looking for a loan. You can still find lending houses that will provide you with a variety of loans, but you may face issues that people with better credit don’t worry about as much.

Your credit score is compiled from your financial history, including loans you took out in the past and whether or not you paid them back on time. It also takes into consideration your credit card habits and outstanding debts. Typically anything under 640 is considered a bad credit rating, and loans given to people in this credit range tend to have a 28.64% APR on average.

Not having debt or any delinquent loans doesn’t guarantee good credit. Financial institutions like to see that you are part of the system and that you have taken out and repaid loans in the past. Having credit cards and regularly paying them off is a good way to accrue good credit.

A bad credit score can mean higher interest rates as well as shorter payment terms and you may be required to put up valuable collateral such as a car or house title to secure the loan.

The bottom line, even if you have bad credit, you can still get a loan, but there will probably be some stipulations.

Pros and Cons

Here are some of the pros and cons of bad credit loans:

Getting a Personal Loan with Bad Credit: Understand Your Needs

If you’re considering applying for a loan despite your bad credit, there is some much needed due diligence to be done. First, you need to ask yourself: Why do I need this loan? Is it for a purchase you've had your eye on but you can still put off for a while? Or is it something you need to purchase right now? If you can put off your purchase for some time, you may want to consider it as adding a loan to your existing bad credit may put you into an even greater hole of debt with bad credit.

Discover the Options: Taking a Loan Despite Your Bad Credit

If you need to take out a personal loan as soon as possible, overriding your current bad credit, there are various lending options available to you:

• Credit unions - These are member-owned nonprofit organizations that generally offer lower fees than banks
• Home equity loans - These take out a line of credit on your home and can put you in a tough situation if down the line you are unable to pay it back
• Peer to peer lending - These are peer lender websites that will let you post your need for a loan. Independent investors will then decide whether or not to lend you money after weighing the impact of your bad credit.
• Co-signers -This is someone who will sign on a loan with you as a show of trust, promising to take responsibility in the event you can’t repay the amount.

If none of these options are viable for you, remember that you can always go to your bank for a loan. Just be aware that most major credit lenders and institutions are hesitant to lend out money when you have bad credit. Choosing an alternative route may prove to be more successful in the end.

What to Check Before Applying for a Bad Credit Loan

Some companies that provide personal loans aren’t entirely trustworthy. Be cautious, do some due diligence, and keep in mind that if a deal sounds too good to be true - it probably is. Reputable industry leaders can be found in our in-depth reviews.

After you’ve decided which company you’ll apply for a loan with, make sure to start gathering all the necessary documents. Some companies require extensive tax documents, as well as employment information and bank statements. With bad credit, you may need to apply at multiple places, so make sure to organize everything you need in order to save time. If you get rejected, ask the company for an explanation so you can adjust accordingly with the next application.

What to look for:

• APR rate on loan
• Is collateral needed, and how much?
• What is the payment schedule?
• Which documents will you need, and will a failed application affect your credit score?

Pay close attention to the APR, which can be affected by the loan purpose, amount, term, and your credit rating. For instance, if you took out a $10,000 loan at 4.99% APR with a term of 3 years, you would owe 36 monthly payments of $299.66.

It may sound obvious, but make sure not to sign any loan agreement until you have reviewed the terms of the loan, especially if you put up collateral. Make sure you know how much the interest will be and what penalties you will face for delinquent payments before going forward.

Once you get your loan, consider it a top priority to make your loan payments on time. This will help you repair your bad credit and help you when applying for loans further down the road.

Personal Loan APR

The APR calculation on personal loans will vary depending on your lender but the APR on these loans is lower than what you would typically receive from a payday or short-term loan – usually starting at 10% and capping at 35.99%. It is not ideal to owe any money but if you require a loan, then a personal loan could certainly be a viable option.

APR rates mentioned include associated fees.

Full repayment for the loans displayed range between 61 days to 180 months.

Representative example: assuming a loan of $10,000 over 60 months at a fixed rate of 3.1% per annum and fees of $60.00. This would result in a representative rate of 3.3% APR, with monthly repayments of $180.80, for a total amount paid of $10,848.00.

Alternatives to Bad Credit Loans

Applying for a secure credit card can be a way to get some quick cash at easier rates than by way of other options. Secured credit cards tend to have low limits, around $1,000 or so, but due to the typically lower interest rates and origination fees, they can be a better option if your cash needs aren’t very high.

If you have a friend or loved one with good credit you can ask them to co-sign a loan with you. However if you don’t make your payments, your co-signer will be on the hook for the payments, and their credit could suffer as a result.

With many retirement plans, you can take an interest free loan out against your plan for the first 60 days, and then pay it back into your plan. Not all retirement plans allow this, and often have as a stipulation that until you pay back the loan it won’t accrue an interest in the stock market.

Conclusion

Bad credit is a problem that plagues millions of people across the United States and beyond. Many falsely think that their less than ideal credit score precludes them from securing a loan, meaning they don’t take advantage of methods that can help them consolidate debt and improve their financial standing. If you have bad credit, rest assured that you can find lenders who are ready and able to tailor a plan to your needs.

* LightStream Terms and Conditions:

*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay may be higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 4.99% APR with a term of 3 years would result in 36 monthly payments of $299.66. SunTrust now Truist is an Equal Housing Lender. © 2020 Truist Financial Corporation. SunTrust®, Truist, LightStream®, the LightStream logo, and the SunTrust logo are service marks of Trust Financial Corporation. All rights reserved. All other trademarks are the property of their respective owners. Lending services provided by SunTrust now Truist Bank. Truist Bank is an Equal Housing Lender. © 2022 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.

* Marcus By Goldman Sachs® Offer Terms and Conditions:
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose, our evaluation of your creditworthiness, your credit history, if we have recently declined your loan application and the number of loans you already have with us. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. You may be required to have some of your funds sent directly to creditors to pay down certain types of unsecured debt. Receive a 0.25% APR reduction when you enroll in AutoPay. This reduction will not be applied if AutoPay is not in effect. When enrolled, a larger portion of your monthly payment will be applied to your principal loan amount and less interest will accrue on your loan, which may result in a smaller final payment. See loan agreement for details.

* LendingClub Terms and Conditions:
A representative example of loan payment terms is as follows: you receive a loan of $13,411 for a term of 36 months, with an interest rate of 12.16% and a 5.30% origination fee of $711, for an APR of 15.99%. In this example, you will receive $12,700 and will make 36 monthly payments of $446.46. Loan amounts range from $1,000 to $40,000 and loan term lengths are 36 months or 60 months. Some amounts and term lengths may be unavailable in certain states. APR ranges from 8.05% to 35.89% and is determined at the time of application. Origination fee ranges from 3% to 6% of the loan amount. Lowest APR is available to borrowers with excellent credit. Advertised rates are subject to change without notice. Loans are made by LendingClub Bank, N.A., Member FDIC (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Loans are subject to credit approval and sufficient investor commitment before they can be funded or issued. Certain information that we subsequently obtain as part of the application process (including but not limited to information in your consumer report, your income, the loan amount that your request, the purpose of your loan, and qualifying debt) will be considered and could affect your ability to obtain a loan from us. Loan closing is contingent on accepting all required agreements and disclosures at Lendingclub.com. “LendingClub” is a trademark of LendingClub Bank.

* Eloan Terms and Conditions:
Rates from 7.99% up to 19.49% APR. Your APR will be determined based or your risk score and credit history. Loans start from $2,000 up to $35,000. The loan amount will be subject to credit approval. Eloan is a Division of Banco Popular de Puerto Rico. Subject to credit approval and meeting the parameters set forth by Banco Popular de Puerto Rico (“Banco Popular”). This offer applies to personal loans without collateral. Offer subject to presenting evidence and verification of acceptable income to Banco Popular. Banco Popular may deny your application if you do not meet the parameters and the established conditions. Other terms and conditions may apply.

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