Whether you're looking to consolidate debt, make a large purchase, or just make some improvements around the house, a personal loan may be a good option for you in getting the cash that you need despite having a for bad credit score.
8 things to remember before taking out personal loans for bad credit
But before we get into that, you should know why an online personal loan is a good option. So typically when you need money for something like an emergency or just something that was unplanned, you'll have three options in getting that funding:
- 1. Payday loans
- 2. Credit cards
- 3. Personal loans
The thing with payday loans is that they are extremely predatory and we want to avoid them by any means necessary. Interest on payday loans can be upwards of 400%, and typically when you borrow through a payday loan, that money is due back within one to two weeks, and the borrowed amount is directly debited from your bank account.
But when we look at credit cards versus personal loans, the average interest rate on credit cards is about 16%, whereas the average interest rate on a two-year personal loan is a little over 9%.
So, online personal loans are the cheapest option and the best and quick option for the things that we're going to discuss here now. There are a few steps that you should consider before opting for a personal loan:
Step 1
The first step is to run the numbers. You want to know how much money you need to borrow, and you want to make sure that you consider a few things when you're coming up with that number.
The most important thing is that a lot of lenders are going to charge you an origination fee, which is taken out of the amount that you borrow, so you should look into what that origination fee might be. And consider it when you ask for the amount that you want to borrow. Also, in running the numbers, you want to look at what your monthly payment will be once you borrow, and here it is highly recommended here to use a loan calculator. You can personalize it to show you the rates that you're interested in seeing, and just all of your financial needs when running the numbers. So, it is highly recommended that you check out the bank rate dashboard.
Step 2
The second step in this process is to check your credit score as most lenders are going to require a credit check, and you have to have at least fair credit to qualify for personal loans for bad credit. Now that means that on the low end, your score is at least 580. But keep in mind that good to excellent credit is not only going to be more likely to get approved. But your interest rate will be a lot lower.
So if you check your credit and you find that your score is a little bit lower than you expected, it is highly recommended that you go to annualcreditreport.com, where you can pull a full credit report from all three of the credit reporting bureaus, TransUnion, Equifax, and Experian.
If you go through all of that and your credit still isn't in that fair range, it is advised that you hold off on applying for personal loans for bad credit and work to improve your credit score so that you can get the minimum interest rate that you desire, and also just make sure that you're getting approved.
Step 3
So the third step is to consider your options. Now, depending on how your credit was in step two, this could determine whether or not you'll need a co-signer for your loan. And if it is the case that you do need a co-signer, you may start thinking about people that you can ask. And if you're unable to find a co-signer, there is another option in taking out a secured loan, which means that you have to put your house or your car up as collateral on the loan. It is important to remember that if you fail to pay your loan back, the bank can come and seize these items. So that's just something to remember about a secured loan.
And one more thing you may be curious about considering during this time is who you may want to borrow from, whether it be a traditional bank, a credit union, or an online lender. So these are all things that you may start thinking about and preparing for.
Step 4
So the fourth step is to choose your loan. So depending on who you're borrowing from, some lenders may require that you provide the reason why you're borrowing the money, and they can accept or deny you based on that.
You should check out the bank rate personal loan marketplace because on it we have a lot of the different reasons that people take out personal loans and other information like interest rates and things of that nature on the different types of loans. Now, speaking of those different types of loans, let's just run through a few:
So one of the most popular reasons that people take out personal loans is for debt consolidation, and essentially what that means is that you use the money from the loan to pay off all of your other debts, like credit cards or whatever it may be. And now you have all of your debts in one big loan, and now you're only making one monthly payment as opposed to all the separate monthly payments that you were making before. And also, typically the interest on the personal loan is going to be lower than the interest that you were paying before. Again, it is the most popular reason that people take out personal loans.
A few of the other reasons are home improvements like you want to build a new deck out back or fix up a bathroom. A personal loan is a great option for doing these projects around the house.
Medical expenses are another big reason that people take personal loans, it allows you to focus on the medical and then focus on paying off the loan later.
And the last reason is weddings. A lot of people use personal loans to pay for weddings and then worry about paying them off over time. So again, you should consider this and be very transparent with your lender and just start thinking about this before going to them.
Step 5
Now the fifth option is that we've gotten things like the credit and considering our options out of the way, we want to begin shopping around for different lenders. Now, this is important. You do not want to go with the first lender at the first interest rate that you're offered. It's really important to shop around and get a feel for what your options are.
As mentioned earlier, there are three different types of lenders that you may consider looking at and comparing against one another traditional banks, credit unions, and online lenders. Now, it is highly recommended that you start with the bank or the institution, whether it's a credit union bank that you have a previous lending history them, or maybe you have a checking account with them.
It is very helpful because typically if you are a valued customer or you have a good history with a particular bank, they may work with you a little bit better, be more likely to approve you, and give you a lower interest rate.
And one more thing that you may consider about the different types of lenders that you can go through is that if you do look into online lenders, typically they'll run a soft credit check, which means that it won't impact your credit score, but you can still get the information that you want and need to consider whether it's a good loan for you. So don't hesitate from those online lenders.
Step 6
So the sixth step that you want to take is finally to pick your lender. You have done all the research, we've done our due diligence, and we're finally at the application stage. Now, the great thing about this is that a lot of lenders have everything completely online, which makes it so much easier.
But still, there is some information that you want to have on hand, just things like your name, and your address. Obviously how much you need to borrow as we talked about previously, and what you're borrowing it for. And you also want to have your income and employment information on hand because it's very likely that the application will ask for that as well.
Step 7
So step number seven is to provide any requested documentation. So you have filled out the application and provided that very basic information that they've asked for. But again, depending on your lender, some banks will ask for documentation to prove the things that we put on our application.
So they may ask for pay stubs or proof of address, proof of employment, and the faster that you're able to provide this documentation, usually through uploading it onto an online portal, the quicker you'll get an approval decision and the faster that you'll get your money.
Step 8
So the eighth and final step, we finally made it to the last step is to approve the loan and be prepared to start making payments. So after you've submitted all the necessary documentation and your application, the lender will get back to you and let you know whether or not you've been approved.
And if you are approved, it is important that set the loan, which means that you're accepting the terms and conditions that go along with it. And then you're also very familiar with when payments are due, which I'll get to in a moment. When you accept the loan, you typically can expect to see the funds in your account within a week.
But a lot of online lenders, again, another perk to them is that they typically get the money to you a little bit faster, maybe sometimes in one to two business days. And as mentioned before, you want to make sure that you're very clear as to when your first payment is due because you want to be responsible for repaying these loans.
A few things about repayments, typically if you sign up for auto-pay, the lender will lessen your interest rate, sometimes up to a quarter of a percent. So that's an option that you may want to consider if it's feasible to you, is to use auto-pay, if possible, pay back a little bit more than what the minimum payment is so that you can pay it back faster and that you end up paying less interest over the life of the loan.
So, these were steps and requirements to qualify for personal loans for bad credit, hope you found them helpful.