Sometimes things happen: a missed credit card payment here, a late bill there, and we find ourselves with bad credit. Sometimes, even with bad credit, we find ourselves in need of a personal loan. I won't lie: it's harder to get a personal loan with bad credit, and there are potentially more headaches involved. But it's not impossible, and in certain situations it may even be your best option for improving your credit. Read on for some points to consider when looking to get a personal loan online despite having bad credit, and the best way to go about it.
Expect a Higher Interest Rate
Certain kinds of loans are backed by collateral. For example, a mortgage is backed by the house itself, while an auto loan is backed by the car. Personal loans don't work like that. Instead, lenders look at your credit score for reassurance that you'll repay the loan on time and within the agreed-upon terms. That's something to keep in mind if you're looking to get a personal loan with bad credit. You will almost certainly pay a higher interest rate than you would with higher credit, and you may even find it more difficult to qualify for a loan at all. Generally speaking, you need a credit score of at least 700 for lenders to feel confident that you'll pay back your cash loans. Bad credit, to them, is any score below 700, and this is where you'll start to run into higher interest rates and difficulty qualifying for loans.
Be Prepared to Shop Around
That's probably disheartening, but don't give up hope! You can still get a personal loan with bad credit, and maybe even with a decent interest rate. You're just going to need to shop around more than you might have to if you had better credit. Luckily, there are great resources like Loanry.com to help you comparison shop and find places to get a personal loan online. Your local or state government may also have some resources set up to help people find loans; do some searching and see what's available!
Using a Personal Loan for Better Credit
So yes, it's harder to get a personal with bad credit. But it also might be just the thing to leave bad credit behind. Taking out a personal loan in order to make your credit card payments is a way of avoiding falling into worse credit, and to work on raising your credit score.
Advantages to Using a Personal Loan For Bad Credit
Consolidate your debt. Credit card debt is often the worst kind of debt you can have. You may find that even with the higher interest rates due to bad credit, a personal loan makes more financial sense than accumulating even more credit card debt.
No Surprises. As long as you look for a fixed-term loan with a stable interest rate, you'll know exactly what to expect. This makes it easier to budget and plan out repayments. Credit card debt, on the other hand, has a fluctuating interest rate and no fixed terms.
Get a Lot Quickly. Personal loans give you access to potentially a large amount of money that can be put toward your debt immediately. This helps to keep your credit score stable.
Shorter Repayment Schedule. In addition to higher interest rates, with bad credit you may find your available repayment terms are relatively short.
Limited Amounts. You may also find the amount that lenders are willing to offer is lower. Together, these two point means you want to make sure that a personal loan will: A) actually cover your credit card debt, and B) not put you into a situation in which you're struggling to repay. If you miss a lot of loan payments, that's not going to be good for your credit score either.
If you want to get a personal loan with bad credit, the most important thing is to be informed. Look into all of your options, and take advantage of all the great information that's available.