4 Options to Get a Loan with Bad Credit
If your credit is bad or you’re just starting to build credit from scratch, you might feel shut out of opportunities to borrow money. Having bad credit can be a roadblock for a loan from a traditional lender. The good news is that there are alternative options.
Option #1: Apply for a loan at a credit union
Credit unions are similar to banks. However, they aren’t legally allowed to serve the general public like banks do, so you have to be a member.
Different credit unions have different membership requirements, such as working for a certain employer, in a particular industry, or living in a certain city or county. But sometimes joining is as easy as a single $10 donation to a charity that the credit union supports. Also, most credit unions extend eligibility to the immediate family of all their members. The purpose of a credit union is to serve its members. So they’re known for offering top-notch customer service. They’re also known for more flexibility and forgiving of consumers who have less than perfect credit. They also generally offer competitive interest rates that can save you money.
You can search for local and national credit unions at: Find A Credit Union, My Credit Union, Find A Better Bank, and Deposit Accounts.
Option #2: Use alternative lenders
Traditional banks tend to be pretty strict for loans. However, there are alternative companies that offer loans even if you have average or poor credit.
Check out the following online lenders that don’t use the traditional guidelines most regular banks do.
SoFi – SoFi uses a uses an overall view of your financial well-being rather than just your credit score. The factors they use include your career experience, income versus expenses, financial history, and education.
Avant – This company also looks at a variety of non-traditional factors when determining eligibility.
LendingTree – This is an online lending exchange that connects borrowers with multiple lenders, banks, and credit partners who compete for your business, even if you have bad credit.
Some lenders allow you to get rate quotes with a soft inquiry to your credit report that doesn’t affect your credit—but many do a hard inquiry that will temporarily ding your scores.
The best way to shop for loans is to submit all your applications within a 1 to 2 week period. They know that a few credit inquiries in a short time mean that you’re shopping and will only be counted as a single inquiry.
Option #3: Try marketplace lenders
Marketplace or peer-to-peer lenders connect people who need money with investors who want to make loans. This option is exploding in popularity because borrowers pay less interest than they would to a traditional bank and investors earn above average returns.
You create a profile and post a loan listing that investors can review and choose to fund. Many are willing to take a chance on borrowers with average or low credit scores.
Check out these popular marketplace lenders: Lending Club, Prosper, and Personal Loans.
Option #4: Appeal to a loan co-signer
If you’re having trouble qualifying for a loan on your own, consider finding someone with good credit to be your co-signer. Maybe you have a family member or friend who trusts you enough to share responsibility for a debt.
When you co-sign a loan, the payment history gets reported on both of your credit reports, even if only one co-signer makes the payments. That means if you make payments on time, it benefits both of your credit reports and helps increase both of your credit scores. However, making late payments damages both of your credit files. And if you default, the lender will hold both of you equally responsible for repaying the full amount of outstanding debt.
