It is possible to obtain a loan with bad credit if you work with a lender who does not require good credit or if you meet other qualifications. Credit scores are important when applying for a loan, but lenders will also consider your income, debts, collateral, and credit history.
What Is A Bad Credit Loan?
A lender will consider your credit score and credit history when determining whether to lend you money based on your credit score. When you have bad credit, you have a low credit score. It can be caused by not having enough credit history, making late payments, or maxing out credit cards. If a person with bad credit needs a loan, their search may need to be limited to lenders that offer loans for people with bad credit. Depending on the loan type, it can either be secured (backed by collateral like a home or car) or unsecured. In addition, the terms, fees, and interest rates of these loans can vary widely. Banks, credit unions, and online lending companies grant loans to people with bad credit. However, they differ in their definitions of a “creditworthy borrower.” It is essential to shop around to find the best mortgage lender because some lenders have stricter requirements. Even if you have bad credit, you can still get a loan. Having a bad credit score may prevent you from getting a great APR (annual percentage rate), but there are still options that offer lower interest rates than credit cards or payday loans.
What Constitutes a Bad Credit Score?
A credit score is from 300 to 850, so there is no official “bad credit” category. But if you are below 650, you are considered a high risk, which means you’ll pay the highest interest rates. Therefore, this group of people is a good candidate for bad credit loans. Lenders define “good” and “bad” credit scores differently. For example, some lenders won’t work with anyone with a credit score below 650; others market to people with a lower score. In other words, it’s hard to say whether you have good credit or bad credit, but the accepted range looks like this:
- A score between 760 and 850 is excellent
- 700-759 is very good
- 660-699 is fair
- 620-659 is poor
- Scores under 620 are inferior
How To Get a Loan When Your Credit Is Fair Or Bad
If you have bad credit, you will have fewer options for getting a loan. Still, it’s good to shop around for the best deal. First, you might look for lenders who regularly lend to borrowers with fair credit ranging from 580 to 669. Over time, the best options can also change. Even if your finances are stable, lenders regularly adjust their credit requirements to reflect changes in the economy and market competition.
What To Look For When Choosing A Bad Credit Loan Company
The best loan company may not be the same for everyone. Consider these factors when choosing a good or bad credit loan company:
- Eligibility Requirements: Most lenders’ websites list eligibility requirements, such as minimum credit scores, income limits, and max debt-to-income ratios.
- Interest Rates and Fees: Interest rates are calculated differently by different lenders. Compare the interest rates, origination fees, and prepayment penalties from a few lenders to find the one with the lowest loan interest.
- Repayment Terms: Lenders of personal loans may offer repayment terms ranging from one year to twelve years. The shorter your repayment period, the sooner you will be debt-free, and the lower your interest payments. On the other hand, extending the repayment period will lower your monthly bill.
- Type of Lender: Online lenders, credit unions, and banks offer personal loans. While you can get the best rates using an online lender, you probably won’t have the same in-person service provided by a bank, but they have other means by which you can reach out to them. In addition, your local credit union may be more willing to extend you a bad credit loan if you have an excellent relationship with them.