In whatever you plan on doing, your credit score will always affect everything from buying something new, getting loan approvals, etc. We will not hide the fact that a bad credit score can make your personal loan approvals more tedious. A good credit score, on the other hand, will make your life easier through faster loan approvals and lower interest rates. Having a poor credit score is one of the situations no one wishes to get involuntarily.
It is a result of the many unavoidable circumstances which you always wish you could get out from. Getting a personal loans for credit score under 600 is hard, but not impossible. Get to find how that is possible with our comprehensive guide on how to get personal loan approval with a poor credit score.
What exactly is a Bad Credit Loan?
Everyone at some point will be pressed by unforeseen scenarios which require you to get a loan to cover unexpected expenses. Having a bad credit score will make it seem impossible to get any help. This is where bad credit loans come in. Personal loans are some of the easiest ones to apply are they are unsecured.
This means that they do not require extensive requirements, as in the case of other loans. Furthermore, the terms of taking such loans are less sophisticated and easier to understand. Bad credit loans are given to you which you repay in installments as per the agreement.
Advantages of a Personal Loan
A loan is seldom advantageous as you will always have to refund it with some interest on top. However, getting a personal loan may prove to be much better than many other types of loans because;
- They are flexible and multipurpose; you can use them for many reasons.
- They are quite easy to process as they do not require a lot of documentation.
- These types of loan are unsecured, meaning they do not require collateral or any security.
Conditions Necessary to Qualify for Personal Loans
While availing yourself for a personal loan, there are specific minimum requirements one needs to have fulfilled to qualify.
- Proper documentation
This is an unsecured loan, so the only way you can get it is when you have proper documentation. Your documents must convey honesty and have accurate up to date details. Some of the records you may be forced to have include; proof of income, proof of residence, original identification documents, utility bills, etc. Other lenders might have more and diverse documentation requirements.
- Minimum debt to income ratio
One must meet the standard debt to income ratio as set by the lenders. This is because a comfortable ratio will assure debt repayment in time. In most cases, the debt to income ration should be anywhere around 30 to 40 percent. If more than that 30% – 40% of your salary is used to finance the loan, then you might be considered for a smaller loan limit.
- Good credit score
Most lenders only approve personal loans for individuals with a good credit score. If you want a personal loans for credit under 600, you will have to conduct more and extensive research to find a lender willing to finance you and still offer you favorable terms.
How Bad Credit Scores Affect Approval for Personal Loans
The harsh reality is that people with good credit scores are more likely to get better loan terms and lower interest rates. Those with poor or bad credit scores can find it hard getting better conditions for loan approval and might also be burdened with higher interest rates. What many people are not aware much of is the fact that age also plays a crucial role in determining one’s credit score and chances of getting a personal loan approved.
A credit score is a rank one is given in an attempt to find the likelihood of you repaying the loan taken. These scores usually range anywhere from 300 to 850, 300 being the lowest. The higher your score is, the better the chances of securing a personal loan without many issues.
People who have a credit score of below 650 are often branded, high-risk borrowers. This is because they are categorized as having bad credit, and their likelihood of repaying the loan in time is quite low. Such individuals are the perfect candidates for personal loans for credit score under 600.
The definition of whether one has a ‘good’ or ‘bad’ credit score varies from one lender to another. In some cases, people who need a personal loan with credit score 600 are not even considered by lenders.
While it is a bit difficult to mark how well or bad the credit scores areas there is no standard formula, here is a typical breakdown you can refer to;
- 800 – 850: Incredibly Good
- 750 – 799: Excellent
- 700 – 749: Really Good
- 650 – 699: Good or Average
- 600 – 649: Fair
- 550 – 559: Poor
- 500 – 549: Very Poor
- 300 – 499: Exceedingly Poor
According to FICO, people who average the age of 60 have a credit score of about 743. The younger generation; of ages 18 to 29 only average 652 credit score. This is probably one of the few instances where being old pays off.
Other FICO factors which are taken into consideration include;
- Payment history
- Amounts owed
- Length of credit history
- Types of credit accounts
- Debt utilization
Credit Score Loan Recommendations
- 480 and lower: It is recommended that you first attempt a pre-approval with a personal loan. Getting a personal loan for 450 credit score is hard but not impossible.
- 480 – 500: You can also try a pre-approval for a personal loan. Most of them will use a soft credit check first.
- 550 and above: You have better chances of getting a loan after which you can be repaying even though your income is well below the amount borrowed.
The Best Lending Sources for Bad Credit Loans
Regardless of the situation, you are in; there is still hope. You are not guaranteed of getting the best terms due to your poor credit score, but again, they come in handy when you really need them. Here are some of the best sources you can run to and you will be sure to receive some level of assistance from them.
Peer-to-Peer (P2P) Lenders
P2P lenders are possibly the best sources of financing when you have a poor credit score. These loans are not tied to any collateral and can be used for any purposes such as debt consolidation, purchasing a car, starting a business, home improvements, etc.
Such loans are not always the best when compared with traditional banks and other credit unions. This is because their interest rates are quite high, with some even charging you up to 36 percent. However, they are very competitive and most likely are your best shot at getting better terms.
When you have a poor credit score, loan aggregators are your other choice to increase your chances of getting a personal loan. They are, however, not direct lenders. These are platforms which you can be a part of, and they will redirect you to dozens of lenders who can finance your loan.
In a nutshell, all you have to do is to fill out a brief form with your details, and the reasons why you are seeking out a loan. After your application has been submitted, you will receive several offers from the different vendors. After that, you will be able to pick whichever you feel has the best terms that suit you.
Personal Loan Sources to be Extra Careful With
- Banks and credit unions
Banks and credit unions have some of the best loan offers but only to those with perfect credit scores. Some banks will not even process your loan request if you have credit cards for 600 credit score. Credit unions are no better, but your chances of getting a loan from them are a bit higher when compared to banks.
If you have money on deposit with a credit union, your likelihood of getting a loan offer is quite high. Moreover, you can increase your chances by adding a cosigner. However, this solely depends on the type of credit union you are a party to.
Just like in the case of banks, many credit unions usually have credit cutoff meaning they cannot lend to someone who has a credit score below their required minimum.
- Subprime loans
Subprime loans are mostly associated with buying a new car with little or no money at all. These auto lenders are best avoided not unless it is indispensable. Such lenders will approve your loan request within a short time, but you will be left with exorbitant interest rates to pay. Some can charge you up to an interest of 20 percent.
At the end of it all, people who have poor credit and subscribe to such a service might end up owing more than it is worth. And again, not all subprime lenders have very high-interest rates, so be sure to take your time before settling down on one.
- Payday loans
These are probably the worst loans anyone can subscribe to. If you have a bad credit score under 600, you would instead look for a loan elsewhere but not take any payday loans. Such types of loans are predatory to people who have bad credit, and that is precisely why they ought to be avoided.
The way these loans work is being provided a loan against your next paycheck. Such lenders will require access to your bank account to automatically deduct the loan repayment with interest during your next payday. These lenders are not lenient in any way and can charge up to 300 percent interest, which is very high.
To add salt to injury, when you fail to get paid on your payday or fail to pay on the agreed date, things can get pretty messy. The ugly part about this type of loans is that you will be doomed to a cycle which keeps repeating itself.
Once you get in, you will be tempted to take another loan and another. It is so hard to get out not unless you default, which has its dire consequences.
How to Get a Personal Loan with Bad Credit
Getting yourself in a situation which might force you to get a personal loan is very easy. With poor credit, it can be tough for you to set out looking for a loan without employing specific strategies.
The first step is to know your credit score. Having the right and exact number can significantly help you in understanding what options are on the table for you. After knowing your credit score, here are some tips to follow, which will help you get a personal loan faster.
- Enlist a cosigner
One of the most natural methods of getting a personal loan is through a cosigner. They act as a guarantor in case you default on your loan. These people who should be close to you are required to have good credit and a stable source of income.
- Apply for a secured loan
Personal loans are, in most cases, unsecured, meaning there is no collateral placed whatsoever. With bad credit, it advisable to apply for a secured loan and use one of your assets as collateral. A secured loan provides less risk to the lender, making them want to work with you more.
- Start rebuilding your credit score
If you hard pressed for money but cannot access any because of your credit score, it is high time to start rebuilding it. Get it to a better score rating, which will eventually increase your chances of getting better loan terms and lower interest rates.
- Watch out for predatory loans
Simply because you need money sooner does not mean you should jump at any chance you get. Watch out for predatory lenders such as payday loans. These are some of the most expensive loans one can ever take.
- Borrow from friends and family
This is one of the most natural methods yet the riskiest. It is easy to borrow from friends and family since they will not take you through grueling procedures and will not also look at your credit score. However, your relationship with them will so much likely get poisoned if you do not live up to the agreement and repay the loan in time. It is advisable if you have collateral just in case you are not able to repay the loan as agreed.
Get Help Now
We understand the problems people undergo when applying for personal loans with poor credit. Use our comprehensive guide to secure yourself a loan today. Feel free to reach out should you encounter any issues.