This is how you get a personal loan with a bad credit bureau

A bad credit score is usually anything below 600. If your score is lower, you are likely to have difficulty approving a loan and, in cases where you are approved, you may not be offered the most competitive interest rates. But that doesn’t have to be the case. With a bit of advance notice and by looking around, it is possible to get a subprime personal loan.

5 ways to get a bad credit bureau personal loan

Approval for a personal loan with bad credit is not excluded. But you can improve your chances of success – and maybe even the interest rate you’re being offered – by following a few steps below.

1. Check your credit history
The first step before applying for a loan is the credit check. Your credit score and credit profile play an important role in determining whether you qualify for a loan and at what rate. Therefore, it is important to know your current score and take all available steps to improve it.

“The best thing you can do is make sure your credit history is as good as possible before you apply,” said Barry Rafferty, senior vice president of personal finance firm Achieve. “That starts with checking credit reports to make sure everything is correct and in order. Why? Because the information from credit reports is included in the calculation of creditworthiness.”

2. Compare your options
The credit marketplace is extremely competitive, so you should shop around and find the best possible credit offers. Multiple types of loans are also available, some of which may be more accessible to borrowers with lower credit scores. Options include:

• Secured Loan: These types of loans are secured by collateral. This means they are backed by your own financial assets such as your car or home. “Because you’re posting collateral…you get more favorable terms on a secured loan,” says James Lambridis, founder and CEO of DebtMD, a free service that connects consumers with lenders, credit agencies, and debt-regulators.
• Credit for bad credit: Bad credit loans are loans designed for borrowers whose credit score is at or below 600. The interest rates on these loans are usually higher than other loans. In addition, the terms of these loans can be much shorter.
• title loan: A title loan does not require good credit. Instead, your car serves as collateral for the loan. These loans can be very risky. Not only are the interest rates much higher than most other forms of lending, but in order to obtain the loan, borrowers must surrender title to their vehicle to the lender. The repayment period for a title loan is also usually very short – just 15 to 30 days.
• payday loan: Similar to title loans, payday loans are often viewed as predatory. The interest rates are very high and the repayment period is extremely short. “Payday loans come with exorbitantly high interest rates. When calculated on an APR basis, over 400%,” says Lambridis. “Furthermore, some companies that offer these loans prey on desperate borrowers, so you probably won’t be dealing with the most ethical companies.”

3. Pre-qualify

Pre-qualification with multiple lenders is another important part of the process when seeking a bad credit personal loan. By looking around, you’ll develop a better picture of the interest rates and loan terms you may be eligible for. “Different lenders offer different benefits to potential borrowers. Everyone will have different tariffs and also different ways of working with customers,” explains Rafferty.

In fact, some lenders who specialize in working with borrowers with lower credit ratings may consider a variety of other financial factors to help you qualify for a loan. This can include your income, work history, and even your educational background.

“A personal loan isn’t just about credit,” Rafferty adds. “Additional factors, including total debt levels, debt-to-income ratio, and income, can affect whether a consumer is approved for credit, and what interest rate they are eligible for.”

4. Find a co-signer

Finding someone willing to co-sign a loan for you is another way to increase your chances of approval.

“A co-signer who has an excellent credit profile and score can help an applicant get a loan at a good rate because both the applicant and the co-signer are legally responsible for repaying the loan,” says Rafferty . “The co-signer serves as a backup in the event that the lead applicant is unable to make payment for any reason.”

When looking for a co-signer, it’s important to find someone who not only has good credit themselves, but also someone you have a good relationship with and can trust. If you fail to repay the loan or default on payment, your co-signer will be responsible for meeting the payment obligations.

5. Apply for the loan

Once you’ve selected the lender you want to work with, it’s time to apply for the loan. Documents required to apply typically include W-2s, payslips, tax returns, social security number, and more. Although each lender may have slightly different documentation requirements.

Additional considerations when opening a bad credit loan

Before making a final decision about a loan, it’s important to look at the big picture — including the monthly payment amount, the total interest cost, and any fees that are often in the fine print.

• Before you take out a loan, understand the monthly loan payment: It’s important to carefully review your budget and how loan payments fit into your cash flow. Make sure you don’t take on more than you can handle.
• Understand the total interest cost before taking out a loan: The total cost of your loan includes not only the principal amount, but also the interest that you will pay over the life of the loan. Be sure to carefully calculate the interest on any loan offer you receive to compare your overall borrowing costs.
• Fees related to bad credit loans: Loans come with a variety of fees, so be sure to read the fine print before signing on the dotted line. These include setup fees, late payment fees, and early termination fees.

take that away

A less than ideal credit rating does not preclude approval for a personal loan. Check your credit score and take steps to improve it before applying, and research multiple lenders to improve your chances of approval. But it’s also important to avoid predatory lenders that offer title loans or payday loans that come with exorbitant interest rates and extremely short repayment terms.