How to Get a Personal Loan with a Low Credit Score

If you have a low credit score, you can still get a personal loan online. While you may be charged a higher interest rate, low-score credit loans allow you to get financial help, when needed. A bad credit loan’s interest rate is offset by how you use the money and repay the loan. This easy-to-use guide will teach you all of the different steps that you can use to successfully obtain a loan with a low credit score.

Best Personal loans

Step 1: Double-check Your Credit Score

You can get a loan with fair credit or good credit lower interest rate once you prove yourself to be a dependable bad credit borrower and payer. Whether you apply for low-score credit loans or a fair or good credit loan, you need to determine your credit standing. Therefore, check your credit report and rating before applying for a bad credit unsecured personal loan online.

Generally, the better your credit history and the higher your credit score is, the lower the APR will be. A lower APR is always optimal so check and see if there are any methods that you can implement to raise your credit score before applying for a loan. When applying for personal loans APR rates are usually as follows:

Average APR by credit band
Credit Score Range APR
720+ 7.63%
680-719 11.88%
660-679 18.53%
640-659 26.15%
620-639 38.64%
580-619 65.70%
560-579 105.39%
Less than 560 113.62%
Source: LendingTree customer data for Q4 2019

 

If you make your loan payments regularly, you can eventually lower your score and improve your situation financially and economically. 

Credit scores are based on the FICO model of scoring and range from 300 to 850. Look at your credit history to make sure everything is correct on all 3 credit reports. If you do see discrepancies, you need to contact the appropriate credit reporting bureau to correct the errors.

An unsecured bad credit loan’s interest rate is only affected by a borrower’s creditworthiness. In this case, you do not need to use collateral to secure the funding. Unsecured personal loans include personal funding, business, loans, and credit cards.

Bad credit secured loans carry a lower interest rate. That is because the collateral or security for the loan ensures against non-payment. However, a secure loan, such as a home equity line of credit (HELOC), can be quite risky. If you don’t repay the financing, you stand to lose your house.

Low-score credit loans that are not secured can be taken out for varying amounts. Determine what you can afford to borrow first concerning a higher interest rate. Before you even apply for any of the low score credit loans, check your current credit scores from the 3 credit reporting bureaus. Also, review your credit report and see what you can do to increase the rating.

Also, before you proceed to apply for a loan, It would be better if you paid down any current debt. Once you get the loan funds, it is important to make sure you repay the loan amount each month on time. 

Step 2: Consider Finding A Co-Signer

A co-signer for a personal loan is a person who will apply for the loan with you, adding their name to the contract. A good friend or family member who has a good credit rating can make an excellent co-signer and by having them apply with you, you greatly increase your chances of getting a loan that you otherwise wouldn’t qualify for. 

Becoming a co-signer does carry substantial risk, however. If for any reason you are unable to pay back your loan, the burden automatically falls back upon the co-signer, meaning that they then become fully responsible for taking on your debt. 

Step 3: Compare Personal Loan Rates

It is highly recommended to shop around when looking for a personal loan. Different lending institutions offer different rates and terms which can greatly affect your repayment plan. Even a small difference of a fraction of a percent in APR rates can mean a savings of hundreds of dollars. Merely checking the rates at other institutions does not affect your credit score, so if you need to compare, you can do this free online. Check for prepayment penalties and what the lender charges in late fees, what the personal loan repayment is, what the monthly fees are, whether you wish to secure the loan and if the loan is fixed or variable. Comparing these factors will allow you to choose the loan with the best possible personal loan terms. 

Step 4: Consider Different Options of Low Credit Loans

 Different lending institutions often offer different methods of loan repayment. Considering these options may allow you the flexibility of payment terms or lower interest rates. Some other loan credit loan options to consider include:

Definition Pros Cons
Secured Personal Loan A secured personal loan is a loan that is taken out against an asset that you own – such as your car. If you fail to make your loan repayment, the bank can then seize your car and use it as collateral. Loan amounts are usually larger

Interest rates are usually lower

If you are unable to pay back your loan, you will lose the item that has been secured.
Salary Advance Loan This type of loan borrows money off of future funds from your paycheck. In most circumstances, it doesn’t matter what your credit rating is, anyone with a regular paycheck will usually qualify.

Interest rates for these loans are usually very low or non-existent.

Not all lending institutions offer this type of loan so obtaining one may be difficult.

Your future income will be lower as your paychecks are reduced to pay off your loan amount. 

Payday Alternative Loan This type of loan is specifically offered to federal credit union members. These loans are usually easy to obtain and in most circumstances only require a quick, online application process.

These loans usually only have a small, flat fee.

You must be a member of the credit union to obtain this type of loan.

These loans are usually of smaller amounts and require quicker loan repayment terms. 

Step 5: Apply to the Best Personal Loan Lender

Once you are happy with the interest rate and terms of a loan, you are ready to submit your application. You would need to show some proof of identity and confirm your current address and yearly income. After submitting the documentation, you can verify the amount you are borrowing, set up any security questions, and concentrate on the terms of repayment.

Personal Loans Documents Checklist

Step 6: Double Check The Offered Loan Terms

After you have applied for the loan you will be given all of the information on it. It is highly recommended to read through all of this documentation and get to know it well. Having a solid understanding of your loan will allow you to be able to repay it on time, therefore not allowing it to have any negative effects on your credit score and possibly even helping to raise it.

Make sure that you are fully aware of the APR, the total amount of the loan that has been applied for, what the full repayment schedule is, what all of the monthly fees associated with the loan are, and if there are any other fees that you should be aware of and what the full term of the loan is. 

Having a solid knowledge of all of this information will put you in control of your finances and will make you more likely to pay back the loan, in full and on time.

Step 7: Autopilot Loan Repayments

Autopilot loan repayments are an excellent option for repaying your loan. This option allows you to sign-up for an automatic weekly, bi-weekly, or monthly repayment schedule in which an amount (determined by you) will automatically be taken from your bank account and put down as a payment on your loan. This option takes the hassle out of paying back your loan and removes any chance that you may forget a payment and end up being subject to fines or penalties.

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