If you have a bad credit score, you are not alone. As a result of recent economic struggles in the U.S., more people struggle with their credit score than don’t. Regardless of credit history, banks and lenders still want to lend money and there are numerous, good opportunities and resources for borrowers to secure loans. Three ways to get a loan with bad credit include taking advantage of lenders that offer loans for bad credit, using collateral to back a loan request, or applying for a loan from an institution that is familiar with you and your financial responsibility.
Exchanging Bad Credit For Good
The only way to build good credit from a bad credit score is to show a history of responsible borrowing. Although it seems counterintuitive, it may be best to get a new loan or other line of credit and then demonstrate responsibility by paying your bill on time, paying more than the minimum payment, and paying the loan in full. One of the most common examples of a loan for bad credit is auto-dealers that advertise with slogans such as “No credit? Bad credit? No problem!”.
Even though they often sound shady, meeting with an automotive dealer that is specifically set up to extend credit to borrowers in need of a decent vehicle could help you out. These lenders often finance in-house and can risk loaning a vehicle to credit challenged individuals because normally, their car payment is one of their only financial commitments they have.
In the long run, these loans have higher interest rates than loans with better terms. In the short term, they offer affordable payments that give you, the borrower, a chance to build a history of on-time monthly obligations that is reported to the credit bureau, which considerably improves your credit. Additionally, resources like payday loans are another way of gaining credit. Again, the interest rates will be high, but on-time payments and eventual repayment in full can boost your bad credit score.
Title loans, or borrowing from a credit union with collateral to back a loan is a form of secure lending and easier to obtain than an unsecured line of credit. Secured credit, whether in the form of a pre-paid credit card or collateral loan, helps rebuild credit because the payments are reported to the credit companies each month, just like an unsecured line of credit. You’re more likely to be approved because you’ve guaranteed that the lender will get their money back, either in the form of cash or the collateral you’ve put up for the loan. For a borrower, this can be tricky because if you default on the loan, you forfeit the property you’ve borrowed against.
Borrowing on reputation is another option. Consumers that have been long-lasting account holders with a certain institution or who have something to offer the lender in return may be able to qualify for a loan, even with bad credit. Banks and credit unions take into consideration account history and may be able to make an exception at the underwriting process in order to push a loan through even if you have a bad credit score.
While it made be hard to get a bad credit loan, eventually someone will say yes. It's all a matter of numbers. The more resources you try, the more solutions that become available. It does mean that you may pay more for the same loan amount as a borrower with a good credit score, but if you can afford the payments you’ll get the money you need and you’ll be improving your credit in the process.