Personal Loans and Bad Credit
Like so many people who struggle with their finances, a personal loan might be the answer to your financial needs, but getting a money advance can be a complicated task. You also have to weigh the varying pros and cons of getting a loan in the first place.
What is a Personal Loan?
A personal loan is created when you ask a creditor or direct lender to lend you money. Personal loans are different from a mortgage received to buy a house or an auto loan acquired to purchase a car. Personal loans are used for more miscellaneous needs such as medical or educational expenses, consolidating debt, or making larger household purchases such as furniture or appliances.
Repaying a personal loan requires you to agree on a fixed monthly installment payment over a predetermined period of time, until the loan is entirely paid back. Loans have an interest rate attached which is added to your monthly fee. Interest is essentially a fee charged by the direct lender which allows them to make a profit off of the money you have borrowed.
How do you apply for a Personal Loan?
Like most financial applications, applying for a personal installment loan requires your financial information along with a credit check. Lenders want to see your financial history and the state of your financial health before they send money your way to ensure you have a track record of paying it back. Many loan companies require good to excellent credit to qualify for a personal loan, but some companies are willing to consider applications with lower credit scores with the stipulation that you may receive a higher interest rate.
How can you qualify for a personal loan with bad credit?
As mentioned above many creditors require you to have a good to excellent credit score to qualify for a personal loan. However, there are some tricks to the trade when trying to get a personal loan with bad credit.
The simplest solution to getting a personal loan with bad credit is to find someone with good credit who can cosign the application with you. If you do not know, a co-signer is a someone who is agreeing that, should you not be able to pay the monthly loan amount, they will be financially able, and obligated, to do so in your place.
You can also, on occasion, get an installment loan with bad credit by agreeing to a higher interest rate than normally provided. This will cost you more money in the long run and may even result in a personal loan not being worth the financial increase due to the interest rate, but is is an option the bank may provide.
Another trick is to get pre-qualified for a personal loan. A pre-qualification can occur when a direct lender does a soft pull on your credit report to get just enough information to decide whether they will be willing to give you a guaranteed approval for loan or not.
Once pre-qualified, you are definitely able to get a loan from that creditor, however, the amount they are willing to loan you might be less than the amount you are in need of.
Where can you get a Personal Loan?
There are many ways to obtain a personal installment loan with no credit check. You can go to your bank or credit union, a peer to peer lending site, an online loan provider, or a private loan from an investor. You can also do a quick search on google for direct lenders only who are more likely to approve a personal loan to someone with a lower credit score.
Should you get a Personal Loan or not?
As mentioned above, personal loans have their benefits as well as negative side effects. This is always dependent on your specific financial situation as it is a very individualized area of life. Whether a loan is the right option for you mostly depends on your financial health and credit usage over time.
On the more positive side of a personal loan, it can help you make a large needed purchase allowing you to more easily pay it back over time in smaller increments.
Consolidating debt is one of the more common uses of a personal loan and can be a beneficial option if you are consolidating multiple high interest credit cards into one smaller monthly payment at a lower interest rate.
When you take out a personal loan and make on-time payments, you are also helping to build a positive credit history for yourself. Being diligent regarding always making your monthly payments is one of the most important elements that impacts your credit score along with your credit utilization ratio. However, missing a payment can be detrimental to your overall credit health and in turn can lower your credit score.
When you lower your score even more it can make it that much more difficult to get approved for loans in the future. You also lose out on the ability to get approved at better rates. If you fall far behind on making loan payments, your personal loan may go into collections which appears negatively on your credit report.
The fact of the matter is that if you feel confident that a monthly payment for your personal loan will not hinder your ability to pay your regular, every day bills every month, then a loan may be the right option for you. However, if you even so much as momentarily question whether you can make that payment every month, you are probably better off looking for another option to your financial struggles.
Your bad credit does not have to stop you from getting the personal loan you need, but it is never a bad idea to proceed with extreme caution and research thoroughly before changing your credit history in anyway. Life is unpredictable, therefore our finances are such. Do your research, think the process through, and then make an educated decision based on your personal needs.