How to Get a Personal Loan With a Credit Score Under 600
March 12, 2018
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Your credit score is one of the most important numbers in your life. It can affect everything from getting approved for a new apartment to your interest rate on a personal loan. A good credit score can help you save money and make major purchases more easily.
According to Experian, one of the three main credit-reporting agencies, a credit score below 649 is considered poor. Having a score below that number can make getting a loan more difficult. However, if you’re in a bind and need a personal loan, there are options available to help you get the money you need.
5 ways to get a personal loan with bad credit
Whether you have to pay for an unexpected car repair or need to a loan to cover the cost of a home improvement, a personal loan can be a smart financing option. But, with poor credit, it can be more challenging to find a lender willing to work with you.
The first step in finding a loan is knowing your credit score. Having an exact number in mind can help you understand what options are best for you. You can get your credit score for free through CreditSoup?.
If your credit score is less-than-perfect, here are five tips to help you find a loan:
1. Use a co-signer
One of the easiest ways to qualify for a personal loan with poor credit is to use a co-signer. A co-signer is someone — usually a friend or relative — who has good credit and a stable income. They serve as a guarantor on the loan. If you fall behind on payments, your co-signer is responsible for making them, instead.
Because a co-signer reduces the risk to the lender, you are more likely to qualify for a loan — and get a more competitive interest rate — than if you applied on your own.
Asking someone to be a co-signer is a big decision. Not only are they on the hook for the payments, but serving as a co-signer can affect their own credit reports. Make sure you both understand the benefits and drawbacks before moving forward with a loan application.
2. Check with a credit union
Unlike many banks and financial institutions, credit unions are nonprofit organizations that serve their local communities. Because they are non-profits, they tend to offer lower interest rates and have less rigorous requirements than other lenders.
They often have loan programs for people with bad credit to help them get low-interest loans and rebuild their credit histories. A credit union can be a good starting point to find an affordable loan.
3. Apply for a secured loan
Most personal loans are unsecured loans, meaning that there’s no collateral. If your credit score is low, unsecured loans might not be a realistic option for you. Instead, you can apply for a secured loan.
With a secured loan, you offer an asset — like your car or home — as collateral. If you default on the loan, the lender can take control of that asset to recoup the loan amount. Like having a co-signer, a secured loan poses less risk to the lender, so they’re more willing to work with you.
Keep in mind that you could lose your collateral if you can’t manage your loan payments, so only borrow what you know you can afford.
4. Take out a short-term loan
If you’re in an emergency and need money quickly, another option is a short-term loan. Many short-term loan lenders are willing to work with those with poor credit, but you will pay higher interest rates as a result. If you understand how the interest rate will affect your balance and you have a repayment plan to pay it off quickly, a short-term loan can be a useful tool to handle unexpected expenses.
5. Consider peer-to-peer loans
If you’ve tried other options and still can’t get a loan, consider peer-to-peer (P2P) lending. With P2P companies, like Lending Club, individual investors pool their funds to offer loans to people like you. You can borrow as little as $1,000 or as much as $50,000.
Individual investors are more likely to take a risk with someone with poor credit than most major banks. And, depending on your credit, income, and your financial need, you might be able to qualify for a lower interest rate than you’d receive from a traditional lender.
Applying for a loan
When shopping for a personal loan with poor credit, it’s a good idea to compare offers from multiple companies to get the best deal.You might find that one company is more willing to work with you than others and can offer you a better interest rate.
You can view our partners’ eligibility requirements and apply for a personal loan online.