How to Find Loans With Bad Credit

Finding loans when you have bad credit can seem overwhelming. Your credit score may be low because of late payments, collections, foreclosures, or bankruptcy. You may feel like no lender will approve you. But there are still options out there for bad credit loans. This article from Delancey Street will walk you through how to find and qualify for loans, even with less-than-perfect credit.

Check Your Credit Report

Before you start applying for loans, it’s important to check your credit report. This will show you an overview of your credit history, including:

• Late or missed payments
• Amounts owed
• Length of credit history
• New credit accounts
• Collections

You can get free credit reports from AnnualCreditReport.com. Review the reports closely to ensure there aren’t any errors bringing down your score. If you find mistakes, dispute them with the credit bureaus. This can improve your credit score.

Know Your Credit Score

Along with your credit report, you’ll want to know your credit score. This three-digit number is what lenders use to decide whether to approve you. Scores range from 300 to 850. In general:

• 300-629 = bad credit
• 630-689 = fair credit
• 690-719 = good credit
• 720+ = excellent credit

The lower your credit score, the higher interest rate lenders will charge you. With bad credit, you can expect to pay much more in interest. But don’t let that discourage you from applying. There are still bad credit loan options if you look.

Improve Your Credit Score

If your credit score is on the lower end, it’s a good idea to work on improving it before applying for a loan. This will open up better rates and terms. Here are some tips:

• Pay all bills on time – Set up autopay or reminders to avoid late payments.
• Pay down credit card balances – Try to keep balances below 30% of the limit.
• Avoid new credit inquiries – Too many new accounts can lower your score.
• Negotiate with creditors – Offer to pay off collection accounts or settle debt.
• Fix credit report errors – Dispute any mistakes with the credit bureaus.

It takes time to improve poor credit – often years. But taking positive steps now will open up more options. Even boosting your score 100 points can make a difference.

Types of Bad Credit Loans

When you have bad credit, you’ll need to look beyond big banks and credit unions. Instead, you’ll want to research bad credit lenders that offer specialized loan programs. Here are some options:

Payday Loans

Payday loans provide fast cash in small amounts, usually $500 or less. You get the money upfront, then repay it all by your next payday. These loans charge very high interest – often 400% APR or more. It’s easy to get trapped in a cycle of renewing payday loans and paying huge fees. Only use them as a very last resort.

Title Loans

With a title loan, you use your car as collateral. The lender appraises your car and offers a loan up to a percentage of its value, often around 50%. Title loans come with sky-high interest rates. And if you default, the lender can take your car.

Pawn Shop Loans

At a pawn shop, you bring in an item of value like jewelry, electronics, musical instruments, etc. The pawn shop appraises the item and offers a cash loan – usually around 25-50% of the appraised value. You get a pawn ticket to reclaim your item. If you don’t repay the loan plus fees, the pawn shop can sell your item.

Cosigned Loans

With a cosigned loan, another person signs on and agrees to be responsible for repaying if you default. Often a parent, relative or friend with good credit cosigns. This can help you qualify and get better rates. But if you do default, it will also damage their credit.

Secured Loans

Secured loans require an asset for collateral that the lender can seize if you don’t repay. Common assets are homes, cars, or investment accounts. Because they are secured, these loans often offer more affordable interest rates than unsecured options. They also let you borrow larger amounts.

Credit Builder Loans

Credit builder loans are designed specifically to help improve your credit score. The lender reports your monthly payments to the credit bureaus. On-time payments are reflected positively on your credit report. Once the loan is repaid, you get the money back minus fees.

Online Lenders

Many online lenders like LendingClub, Prosper and Upstart offer bad credit loans with competitive rates. They use factors besides credit scores to approve borrowers, looking at income, employment and education. This creates more opportunities.

Tips for Getting Approved

When applying for a bad credit loan, follow these tips to increase your chances of approval:

• Shop around – Compare as many lenders as possible to find the best deal.
• Only apply for what you need – Don’t take out more than you can afford to repay.
• Use a co-signer – Adding someone with good credit can help.
• Offer collateral – Secured loans are easier to qualify for.
• Explain past credit issues – Context can help if you’ve changed circumstances.
• Highlight income and assets – Good income makes you look more reliable.
• Start small – You may need to build up to larger loans.

The most important thing is making all your payments on time once approved. This will gradually help improve your credit and open up better options down the road.

Alternatives to Loans

If you’re having trouble qualifying for a loan, explore some alternatives:

• Borrow from family or friends – Avoid fees and interest.
• Credit counseling – Get help negotiating with creditors.
• Debt management plan – Consolidate debt into one monthly payment.
• Balance transfer credit card – Move balances to a 0% APR card.
• 401(k) or IRA withdrawal – Use retirement savings (with penalties).
• Bank account overdraft – Watch out for overdraft fees.
• Payment plan with creditors – Set up installments directly.

These options come with their own pros, cons and risks. Make sure you understand all the costs and implications before proceeding. In some cases, biting the bullet and paying high interest on a bad credit loan may be preferable.

The Bottom Line

Bad credit doesn’t mean you’re completely out of luck when you need a loan. Specialized lenders offer online loans, payday loans, secured loans and other options. The interest rates won’t be ideal – but at least it’s accessible credit. Be persistent in comparing offers. And take steps to boost your credit so more doors open in the future.