Are you thinking about getting a personal loan, even though you have less than stellar credit?
More and more Americans are turning to financial products like personal loans to pay off old debts, invest in themselves, and give themselves a little cushion when needed.
Personal loans have become more common in the last year, as $120 billion was borrowed by consumers.
If you’re looking for a personal loan for bad credit, it may seem that you won’t be able to get approved for a personal loan. You’ll be relieved to know that you have plenty of options, though they might have some limitations.
Read on to learn everything you need to know about getting a personal loan with bad credit.
What Is a Personal Loan?
A personal loan is a type loan, they’re usually offered by banks and online peer-to-peer lenders.
Personal loans are paid back in monthly installments. The amount of the installment depends on how much you borrow, the payment terms (24 months, 36 months, etc.) and the interest rate.
How does a personal loan compare with other types of loans? You might be considering a payday loan or maxing out a credit card for a small dollar amount.
Payday loans are known for high-interest rates and short terms. The payday loan is a lower dollar amount, usually $500 and needs to be paid back in full within 14-30 days.
Credit cards aren’t loans, but lines of credit that you can build up and pay down. Credit cards often have higher interest rates than personal loans, but that would largely depend on your credit score.
For people with a good to excellent credit score, your credit card interest rate can be as low as 15%, where someone with bad credit might see an interest rate as high as 29.99%.
How Much Can You Borrow on a Personal Loan?
What’s good about personal loans is that you can borrow more than you normally can with a credit card or payday loan.
How Much Can You Borrow with Bad Credit?
The good thing about personal loans is that there’s more competition. That means that more banks and lenders will be willing to offer a personal loan to someone with bad credit.
How much will you be able to borrow if you have bad credit? That amount will vary depending on your personal situation.
The main factors that are taken into consideration are your income and your credit score. Banks and lenders want to make sure that you can pay back the loan. If you’re taking out a $50,000 loan and only make $36,000 a year, they’ll turn it down.
How to Get a Personal Loan for Bad Credit
It is possible to get a personal loan for bad credit. You need to be aware of where you stand now and look at your financial situation from the bank’s perspective. Here’s what you need to do.
Check Your Credit Score
The first thing you want to do is check your credit score. Go to AnnualCreditReport.com and pull your credit report. You can do that for free through this site. It will get your report from the major credit reporting bureaus: TransUnion, Equifax, and Experian.
You’ll want to make sure that there isn’t anything that’s misreported on your credit report, such as a missed payment. If you find anything suspicious, report is to the credit reporting agency right away to have it removed.
It’s a long process, but it can help you improve your credit score. That could result in a better interest rate on your credit report.
The personal loan market is very competitive, with more and more borrowing options available. You don’t need to take only what your bank has to offer.
You can shop around at your local bank, credit unions and online. There are peer to peer lenders that offer competitive rates, even for people with bad credit. Take a look at these bad credit personal loans to find more options available.
Applying for Personal Loans and Your Credit Score
Did you know that applying for a personal loan can make your credit score drop? Anytime you apply for a personal loan, lenders will pull your credit report. This is called a hard pull.
If you have too many hard credit pulls in a short period of time, it can be a sign that you’re in financial difficulty and you won’t be able to pay back the loan.
That doesn’t mean that you shouldn’t apply for a personal loan. You just need to be strategic about it. When you shop around for a personal loan, be sure that lenders do a soft credit pull to see what you’ll qualify for.
A soft credit pull won’t impact your credit score and allows you to shop around a bit. You’ll be able to get an idea as to how much you can borrow and what the interest rate is likely to be. That will help you minimize the impact of applying for a personal loan.
Getting a Personal Loan with Bad Credit is Possible
Being in a financial bind isn’t always fun, but you do have options to bridge that gap, even if you have bad credit.
Getting a personal loan for bad credit is possible with so many institutions offering competitive rates. You’ll want to shop around for a loan, but don’t apply for too many loans at once, because that will lower your credit score even more.
Want more tips to rock your finances? Check out this financial toolkit, which is full of resources and calculators to help you get control of your financial situation.