Can You Get a Loan With Bad Credit or No Credit?
When trying to get a loan, banks consider your credit history, financial stability, overall character, and collateral assets. You might find it difficult to have your loan application approved if you have bad credit or a damaged credit score.
Fortunately, there are other options to get a loan that won’t require you to look perfect in the eyes of the bank.
Why Do Banks Reject Loan Applicants With Bad Credit Scores?
Banks want peace of mind when lending their money to someone. They view those with bad credit as ‘high risk’ and will most likely reject their application. The best thing to do in this case is to find other means of acquiring a loan:
Alternative Solutions to Get a Loan with Bad Credit
Some creditors will accept a co-signer with good credit to serve as a guarantor for a person who has a low credit score. The co-signer is essentially agreeing to reimburse the amount owed if the loan applicant fails to pay their debt.
A credit union is a financial cooperative that is run by its own members. There are different types of credit unions to suit a borrower’s needs, whether it be corporate or personal. The public tend to trust credit unions more than they trust the banks, and in many instances, interest rates aren’t as high.
Some people are willing to put up their own money to help someone looking for a loan. In many cases, these can be your close friends, associates and family members. If dealing with investors outside your inner circle, ask to see valid identification and try to contact references that can verify the investor’s legitimacy.
Home Equity Loan
This enables you to use your home as security for your loan. The loan amount you’re eligible for depends on the equity you have on the property. However, a major downside is that you stand a chance of losing the property if you don’t go through with the loan payments.
Also referred to as “crowdlending” or “P2P lending”, this option is where creditors are connected with borrowers via an online service. The peer-to-peer lending company collects a fee for their services, which includes assessing the credit of the borrower. In most cases, collateral is not required in P2P platforms.
These are usually quick loans for small amounts of money that are meant for a short timeframe (normally for a few months). They often come with high interest rates. Loan repayments will be taken from the borrower’s monthly salary. You can use this option for emergencies and urgent cash needs.
Car Title Loans
Similar to the home equity loan, you can use your car to secure your loan and use the vehicle title as collateral. The amount you can borrow will depend on your equity in the car, as well as the market value of the property.
Much like payday loans, a micro loan or “mini loan” is for a small sum of money for a short period of time. Also known as “emergency loans”, they will also come with relatively higher interest rates.
You can also acquire a cash advance from your credit card. The amount of the loan depends on your credit limit. Unlike a payday loan which doesn’t involve a credit check, a credit card cash advance is linked to your credit card, meaning you would need to have passed a credit check in the past to obtain one.
Debt Consolidation Loans
One of the most practical options available, a consolidation loan is where you can take care of a collection of smaller debts by combining them into one. The loan is taken over a more extended period, giving you some breathing room to manage your money and your assets while you pay off the loan at a fixed interest rate.
In this case your pension acts as an asset much like a house or car. The loan is taken out according to the value of your pension. The downside is that this often involves a long-term payment plan against many more of your pension payments to come. Some companies require that the borrower must buy a life insurance policy that names the company as the beneficiary.
What To Look For When Choosing a Lender
Whatever option you decide on, you should always evaluate the creditor beforehand. Go over the terms of the agreement, compare the interest rates with others, and read the fine print. Look for lenders that have positive Google reviews and a satisfactory Best Business Bureau rating.