Getting a loan when you have bad credit isn't always easy, but it's doable. No matter what, when you've got a bad credit score, lenders consider it more risky to loan you money, which means you're facing limited options and high interest rates.
For homeowners, the home equity line of credit (HELOC) is often a go-to choice. And some people with bad credit look for personal loans from sources other than banks. These can include asking for loans from friends or family, peer-to-peer lending services like Prosper, and payday lenders. Those options aren't right for everyone, so consider your situation carefully and do your best to avoid predatory lenders.
If you're looking for a more traditional bad credit loan, use these tips to make the best decision possible.
Clean Up Your Credit Report
While coming face to face with a report on your financial mistakes is never fun, it's the smartest thing you can do before getting a bad credit loan. Get a free copy of your credit report and make sure there's nothing damaging on it that should have been removed. Pay off any outstanding debts that you can knock out quickly. This will improve your credit score and your confidence.
Know What You Can Pay
Before you take out another loan, come to terms with your monthly budget and be crystal clear on how big of a monthly payment you can afford. Don't get yourself into another situation that could damage your credit further.
If you're thinking about using some collateral to secure a loan, like your car or house, be extremely cautious. Doing so may open up some better loan options, but if you fall behind on payment you'll lose whatever it is you used to secure the loan.
Look for Bad Credit Loans Online
Not only can you research your options for getting a bad credit personal loan online, you can even find online-only lenders that may offer bad credit loans with easier terms.
Look at your options from both physical banks and online banks, and compare the terms they offer. Knowing all of your options is the key to getting the best loan available, and that matters when your credit is struggling.
Make Sure the Terms Are Clear
When you're getting a bad credit loan, it's important that your loan offers terms that you can handle. Don't move forward on any loan if the lender doesn't present the terms, including interest rate and payments. Once you're clear on those, you may even find that using a credit card instead and paying the same amount as a loan payment is a better option.
Don't Forget About Credit Unions
Credit unions operate similarly to traditional banks, but the way they're set up allows them to offer lower fees and rates with higher levels of services. See what kinds of loans the credit unions in your area offer -- there may be some attractive options.
Final Thoughts on the Bad Credit Personal Loan
If you've got bad credit, it's not necessarily the end of the world. With a bit of careful planning, you can use your bad credit personal loans to rebuild your credit and position yourself for better options in the future.