It’s hard to get a loan with bad credit. Options are limited, and borrowing is more expensive. If your credit is "less than perfect" you're not completely out of luck - it's just that you'll have to work a little harder to get funded. But in your situation it's easy to fall into expensive traps, so let's review the things you can do to improve your chances.
What is Bad Credit?
Your credit may not be as bad as you think. If you’ve been told that your credit ruined your chances of getting a loan, make sure it’s true. There may be errors on your credit report. Once those errors are fixed, things may look very different to lenders.
The term "bad credit" means different things to different lenders. One lender might turn you away while others are willing to lend. Don't be afraid to shop around before deciding that your credit is a dealbreaker. That said, there are two things to be careful of in this process:
- Submit all of your applications within a short period of time (two weeks or so) so that you don't ding up your credit with too many inquiries
- Apply only to reputable lenders such as banks, credit unions, and P2P lenders described on this site; predatory lenders will almost always give you a loan, but you'll regret it later
If your credit is truly bad, here are a few ways to try getting a loan with bad credit.
Visit Credit Unions
Credit unions may be more willing to offer you a loan with bad credit. Because they tend to be smaller than large banks, there's a better chance that they'll look at you personally - as opposed to just looking at a credit score and the loan application. If you sit across the desk from a human being, you’re more likely to get a loan with bad credit.
Try Peer to Peer Lending
Peer to peer lending services are another good option for getting a loan with bad credit. Instead of borrowing from banks (with rigid rules and higher overhead costs), you can borrow from individuals. They may be more sympathetic, but they’re not looking to lose their money.
Tap Friends & Family
Most peer to peer lending sites allow you to borrow from strangers. However, if your credit is really bad, your friends and family may be your only option. They know you, and may be willing to take a chance. If you borrow from friends and family, do it properly so everybody’s protected: document the loan terms on paper, and consider using a third party to process payments.
- For more ideas see Family Loan - Good Idea?
- Find out How Co-Signing Works
If you’re having trouble getting a loan with bad credit, you may need to put up collateral. By pledging something of value, your lender knows you’re serious and has a better chance of collecting some money. If you have equity in your home, you can probably borrow against it - but there are significant risks.
Some lenders take advantage of folks looking for loans with bad credit. They charge astronomical fees and make it nearly impossible to dig yourself out of debt. Study up on the following types of loans and avoid anything that looks similar: