Bad credit loans are personal loans for people who have low credit scores or thin credit histories. They can help you cover an emergency expense, consolidate debts, or improve your credit. However, getting a loan with bad credit can also come with high costs and risks. Here are some tips on how to get a loan with bad credit and avoid common pitfalls.
- Check your credit score and report. Before applying for a loan, you should know where you stand with your credit. You can get your credit score for free from many sources, including NerdWallet1. You can also get your credit report from all three bureaus for free at AnnualCreditReport.com. Review your credit report for any errors or negative items that may affect your chances of approval.
- Understand the costs of getting a loan with bad credit. Bad credit loans typically have higher interest rates, fees, and penalties than regular loans. This means you will pay more over the life of the loan and have higher monthly payments. You should compare the annual percentage rate (APR) of different loan offers to see how much they will cost you in total. You should also look out for any hidden fees or prepayment penalties that may increase your costs.
- Shop around for personal loans. No two lenders have the same requirements, rates, or features, so it pays to shop around and compare multiple options. You can use online platforms like NerdWallet or Bankrate to prequalify with various lenders and see your potential loan terms without affecting your credit. You should also consider alternative sources of funding, such as credit unions, online lenders, or peer-to-peer platforms, that may offer lower rates or more flexible terms than traditional banks.
- Consider a cosigner. A cosigner is someone who agrees to repay your loan if you fail to do so. Having a cosigner with good credit can improve your chances of getting approved for a loan and getting a lower rate. However, you should only ask someone you trust and who is willing to take on the risk of cosigning for you. You should also make sure you can afford the loan payments and avoid defaulting on the loan, as this will damage both your and your cosigner’s credit.
- Check out secured loans. Secured loans are loans that require you to pledge an asset, such as your car or home, as collateral. This reduces the risk for the lender and may allow you to get a loan with bad credit or a lower rate. However, you should be aware of the risks of secured loans, as you could lose your asset if you fail to repay the loan. You should also compare the value of your asset with the amount you need to borrow and avoid borrowing more than you need or can afford.
- Get prequalified for a loan. Once you have narrowed down your options, you should get prequalified for a loan with the lender of your choice. Prequalification is a soft inquiry that does not affect your credit score and gives you an estimate of your loan terms, such as the amount, rate, and duration. Prequalification can help you plan your budget and prepare for the final application process. However, prequalification is not a guarantee of approval, and you may still need to provide additional documents and information to get a final loan offer.
If you are interested in learning more about bad credit loans, you can check out these three sites for more information and tips:
- How to Get a Personal Loan With Bad Credit – NerdWallet
- Best Bad Credit Loans of January 2024 – NerdWallet
- Best Bad Credit Loans in January 2024 | Bankrate