Having bad credit doesn’t mean that you will never be able to get a loan. If you are turned down by the bank, you can try going to the credit union to apply for the loan. The manager at a credit union is more humble and they will not mind discussing about the loan with a borrower with bad credit. He will be more willing to sympathize with your circumstances and arrange for a favorable loan term.
Alternatively, you can take out the loan at a peer to peer lending platform. P2P loan is easier to qualify because you are borrowing money from individual investors rather than a bank. The individual investors don’t get as much regulations as the bank and they can approve the loan as they see fit. P2P loan is similar to a regular loan and you usually pay it off in between 3 – 5 years. Prosper and Lending Club are the two leading p2p platforms offering personal loans with interest starting from below 6%.
On a p2p platform, you must first make a loan request. If an investor wants to invest in you, they will place a bit. When you have attracted an investor(s) to fund the loan, you will sign the agreement and they will deposit the funds to your account. Many p2p sites charge origination fee and other fees so be sure to check the terms before putting down your signature.
However, you must keep in mind that having a bad credit score means that you have to take out the loan at the price of a higher interest rate. The higher interest rate is to compensate for the risk of the borrowers to the bank. You can use the online repayment calculator to calculate the estimate monthly payment before taking out the loan.
The final option would be applying a loan from a bad credit lender. You can go to sites like personalloans.com to find unsecured bad credit loan at affordable rate. You can borrow up to $35,000 just like a regular bank loan when you apply through personalloans.com. However, the interest rate of the bad credit loan will be higher than p2p or credit union loan. With personalloans.com, they will show you a few offers that match with your eligibility criteria.
If you are hoping to get a better interest rate, you should improve your credit score. For example, if you have 560 credit score, you are just 20 points away from achieving the fair credit status. You must start to get punctual in paying your bills if you want to increase your credit score. You can also get a secured credit card to raise your credit score.
Updated on June 8, 2019 to revise references in this article.