If you require a personal loan but your credit isn’t in the best condition, you might be wondering if you can still get approved. The good news is that there are creditors who focus on assisting people with low credit scores. Even with increased interest rates possible, obtaining a personal loan to meet your financial needs may still be feasible. We’ll go through the fundamentals of getting a personal loan with negative credit in this guide.
Minimum Credit Score Requirements:
When it comes to personal loans, a bad credit score doesn’t necessarily mean you won’t qualify, but it does make the process more challenging. Typically, a FICO credit score below 580 or a Vantage credit score of 600 or lower falls into the “bad credit” category. Most lenders don’t explicitly publish credit score requirements, but to meet their minimum criteria, you’ll likely need to be on the higher end of the bad credit spectrum. Some lenders prefer borrowers with at least fair credit, which generally falls between a FICO score of 580 and 669.
Three Lenders for Bad Credit Personal Loans:
If you’re in search of a personal loan with bad credit, consider these reputable lenders that specialize in catering to such situations:
- Prosper: Prosper offers fixed-rate loans ranging from $2,000 to $40,000 for various purposes. While there is an origination fee of up to 5%, Prosper stands out as a top choice for those with bad credit.
- Payoff: The primary goals of Payoff are to assist borrowers in raising their credit ratings and eliminating high-interest credit card debt. Payoff offers adjustable periods of two to five years, loan amounts up to $35,000, and an origination cost of up to 5% with no additional expenses.
- Avant: With fixed loan periods ranging from 24 to 60 months, Avant offers loans up to $35,000 for a variety of financial requirements. Although the company does not disclose an origination cost, all loans are subject to an administrative fee of up to 4.75% and other possible fees.
How Credit Impacts Your Interest Rate:
Both your qualifying for a personal loan and the interest rate you will pay depend critically on your credit score. Different lenders have varying requirements, but most assess factors such as:
- Credit score
- Debt-to-income ratio
- Credit history
- Employment history
Unfortunately, individuals with bad credit typically face higher interest rates due to the perceived higher lending risk. Having bad credit may limit your borrowing options, and higher interest rates mean you’ll pay more over the loan’s lifetime.
Steps for Obtaining a Personal Loan with Bad Credit:
To increase your chances of securing a personal loan with bad credit, follow these steps:
- Check Your Credit: Before applying for a personal loan, understand where your credit stands by obtaining a copy of your credit report from major credit bureaus. Many financial institutions offer free credit scores, so take advantage of these resources.
- Compare Lenders: Evaluate various lenders based on factors like interest rates, origination fees, prepayment penalties, and loan terms. Some lenders offer soft credit pulls to check rates or prequalify you, which won’t harm your credit score.
- Consider a Cosigner: If you’re struggling to secure a loan on your own, some lenders allow you to apply with a cosigner—a person with good credit who assumes responsibility for the loan if you cannot pay.
- Beware of Scams: Be cautious of companies that promise guaranteed approval or request advance fees. Legitimate lenders do not engage in such practices. If something seems too good to be true, it’s wise to avoid it.
Why Payday Loans Should Be Avoided:
While payday loans may seem like a quick solution, they come with significant downsides. These short-term, high-interest loans often lead to a cycle of debt due to their exorbitant fees and quick repayment terms. Due to the potential harm that payday loans could cause to borrowers, many states have legislation in place to restrict or outright ban them.