There is a substantial difference between shopping for a home, car, boat, or credit card with a good credit score versus a bad credit score. A good credit score will allow you to confidently apply for any and everything knowing that your chances of approval are high. Having a bad credit score however will leave you with sweaty palms and saying a lot of prayers while your loan application is processing. While no one wants to have bad credit, bad credit loans are an option for those with scores beneath the 600 level.
Good Credit Loans
Individuals with good credit have access to unsecured lines of credit. Unsecured loans do not require any security or collateral and are generally issued to creditworthy borrowers based on your credit score, financial standing, and current employment. This financial data is utilized to judge your ability to repay the loans. Loan approval on unsecured loans requires good credit due to the absence of collateral. Unsecured loans are considered riskier to the lender as they don’t have anything to protect them if they need to recover their loan amount in case of default. Most credit cards, personal loans, and lines of credit are examples of unsecured loans. Lenders typically charge low interest rates on unsecured loans to borrowers who possess excellent credit.
Good Credit Loan Sources vs. Bad Credit Sources
Anyone can finance a purchase using an unsecured loan, as long as their credit score is high enough. A credit score of 660 and above opens the doors to unsecured loan financing. The processing for unsecured loan applications is faster as there is no need for appraisal of the property being pledged. The interest rate and the term of these loans are fixed, so it lets you plan out monthly installments accordingly. Having a good credit score will allow you to prequalify with banks and credit unions which gives you greater leverage when purchasing because sellers know you are already qualified.
What happens if your credit score is low?
Anything below a 600 credit score is typically regarded as bad credit. A score in the 400’s or 500’s is not the kiss of death. Fortunately, bad credit loans are an option for bad credit borrowers.
Bad Credit Loans
Credit scores can plummet due to a variety of reasons. While a bad credit score makes it much tougher to secure loans; it’s not impossible. Bad credit loans are offered by subprime lenders. Subprime lenders specialize in bad credit loans, which give second chances to individuals who have dings on their credit report. If used properly, a subprime loan can be an effective tool to receive some cash and rebuild your credit.
Here are some of the best sources of loan financing for borrowers with bad credit scores.
Prosper Personal Loans
Prosper is a good site to start with if you have a shaky credit score and need to borrow cash without paying payday loan, pawnshop loan, and title loan interest rates. Prosper is a peer-to-peer lender who provides loans for everything from debt consolidation to IRS tax loans. Peer-to-peer lending allows you to borrow money from other people and not banks. Peer-to-peer lending has less strenuous lending requirements than financial institutions.
Prosper rates loans based on credit scores. Borrowers with great credit are classified as AA loans and bad credit borrowers are classified as HR for high risk. Ratings go a follows: AA, A, B, C, D, E, and HR. AA loans are lower risk to lenders so the interest rate received is lower. Prosper borrowers can borrow as little as $2,000 up to a maximum of $40,000.
Personal loan APR’s range from 6.95% for good credit borrowers to a maximum of 35.99% for bad credit borrowers. Borrowers are able to repay loans over a 36 month to 60 month time frame. Loans can be paid off early with no prepayment penalties. Prosper is available to borrowers in all states except Iowa and West Virginia residents.
In order to qualify for a Prosper loan, borrowers need to submit the following information:
- Name
- Address
- Birthdate
- Driver License or State ID
- Identifying Information
The minimum criteria to borrow from Prosper is:
- A debt to income ratio below 50%
- Verifiable income
- Less than 5 inquiries on credit report over the past 6 months
- No bankruptcies filed over the past year
- Minimum of 3 open trades reported on credit report
Once your loan is approved, the money is deposited directly into your bank account.
Upstart Personal Loans
Sites such as Upstart allow borrowers with below average to excellent credit scores to borrow money. Upstart provides loans to borrowers with all types of credit cards. Upstart provides personal loans, wedding loans, educational loans, medical loans, moving loans, debt consolidation loans, credit card consolidation loans. Upstart loans are unsecured meaning that you do not have to pledge any collateral to receive financing. You provide your personal information and proof of income to qualify for a personal loan. The entire process is completed online.
Loans on Upstart start at a minimum of $1,000 to a maximum of $50,000. Loan rates at Upstart are as low as 4.73% for good credit borrowers and rise to a maximum of 35.99% for bad credit loans. Loans are available in 48 of the 50 states excluding Iowa and West Virginia. Upstart offers 3 to 5 year terms on loans giving borrowers time to repay loans without having to pay payday loan interest rates.
One of the advantages of Upstart is that loan approval is based on more than just your credit score. Upstart considers a number of factors when determining loan approval amounts and interest rates. Upstart looks at:
- the number of years of your credit history.
- your educational level.
- your area of study.
- your work history.
Upon approval, loans are funded and deposited in your bank account the next business day. Upstart offers lower interest rates than most borrowers with bad credit would provide elsewhere.
Lending Club For Bad Credit Loans
Lending Club provides financing to borrowers with credit scores in the 500’s. Lending Club is a peer-to-peer lending site where borrowers can get funding for auto loans, personal loans, business loans, home loans, debt reduction loans, refinancing loans, and medical loans. Personal loans, debt consolidation, and credit card payoff loans are available up to $40,000. Small business loans are available up to $500,000. Automobile refinancing loans are available up to $55,000.
The entire loan process is completely online. Borrowers upload income statements (pay stubs, recent bank statements, W-2’s or 1099 forms). Borrowers must also upload identity and address documents (photo ID’s, utility bills, cable bills, lease agreements, insurance policies, mortgage statements, etc). After linking your bank account and completing Form 4506-T, Lending Club will confirm your identity, employment, and income. The loan approval process can take up to 7 business days. Upon loan approval, the funds are deposited in your bank account.
The loan requirements for Lending Club are as follows:
- You must be at least 18 years of age.
- You must possess a bank account.
- You must provide name, address, social security number, and other personal identifying information.
- You must be a U.S. Citizen or permanent resident, or living in the U.S. on a visa (Iowa residents are not eligible for loans from Lending Club).
- You must consent to a soft credit inquiry.
Your credit report and credit score will play a major factor in the interest rate that you receive. Rates vary from a low of 6.95% to a high of 35.89%. Borrowers must also pay a loan origination fee upon approval which varies between 1% to 6% based on the borrower’s credit history.
Those with a positive credit history receive the best rates on Lending Club but bad credit borrowers can receive loans as well just at higher interest rates.
OppLoans For People With Poor Credit
OppLoans gives installment loans to borrowers with subprime and poor credit scores. OppLoans actually calls these loans Bad Credit Loans. They are for borrowers with poor credit scores from 300 to 629. OppLoans provides financing to bad credit borrowers looking for alternatives to payday loans, pawn shop loans, and title loans. OppLoans bad credit loans are based upon a borrower’s ability to repay the loan amount. Borrowers with a low credit score and adequate income will find it easier to obtain approval.
OppLoans loans have a maximum term of 36 months. Most OppLoans financing is short-term financing designed to bridge temporary liquidity needs. OppLoans is an alternative for borrowers who might need a cash advance just until payday and do not want to pay 600% in interest. OppLoans interest rates range from 99% to 199% APR. OppLoans loan amounts range from $1,000 to $4,000. The advantage of OppLoans for bad credit borrowers is that no collateral is required and the credit check to apply is not reported as a hard inquiry.
OppLoans bad credit loans require that borrowers:
- Be at least 18 years of age (19 in Alabama and Nebraska).
- Reside in one of the following states where OppLoans has a physical presence (Alabama, California, Delaware, Georgia, Idaho, Illinois, Mississippi, Missouri, Nevada, New Mexico, South Carolina, Texas, Utah, and Wisconsin).
- Possess a bank account.
- Provide name, address, social security number, proof of income.
- You must receive income via direct deposit. (No paper check paychecks)
Upon loan approval, funds will be provided the next business day.
OneMain Financial For Bad Credit Borrowers
OneMain Financial is another lender who offers loans to all borrowers. There is no minimum credit requirement and loans range from $1,500 to $20,000. Loan length range from 24 months to 60 months. The average APR varies from 18% to 35.99%. Loans are available for debt consolidation, life events, recreation, auto loans, and home projects.
You can find out if you are prequalified for a loan online or you can visit a branch to verify your identity and income. OneMain has branches in 44 of the 50 U.S. states. Only Alaska, Arkansas, Connecticut, Massachusetts, Rhode Island, and Vermont do not possess OneMain branches.
In order to apply, you need the following:
- Valid government ID.
- Proof of residence.
- Proof of income.
Loan approval can occur in as soon as 10 minutes and cash can be received the next business day. OneMain Financial offers both secured and unsecured loans. The secured loans require collateral making them a less favorable option than the unsecured offerings.
Subprime Lender Warning
Be advised that subprime lenders charge higher interest rates and often have more fees attached than unsecured loans. Despite their high interest rates. they are still better options than pursuing payday loans, pawn shop loans, and title loans. Saving money on loans is a great way to multiply your money.
You can improve your chances of qualifying for loan financing and lower your interest rates by following these tips.
Improving Your Chances Of Getting A Bad Credit Loan
Save up a substantial down payment amount.
Bad credit borrowers need to pay more cash upfront than good credit borrowers. Cash is still king. The lower your credit score, the more cash that you need to bring to the table. You should save approximately 20 percent of the purchase price of your big ticket purchase. This increases your chances of qualifying for a purchase that your credit would not allow you to sign for. A down payment reduces the risk to the lender and reduces the annual percentage rate that will need to be repaid in interest.
Consider a co-signer.
Find someone that you trust (a relative or close friend) and ask them to be a co-signer on your loan documents. Make sure your cosigner has a great credit score! I have seen people have loans denied because they asked someone to co-sign who had a shaky credit score. A good credit so-signers lowers some of the risk for lenders as they assume responsibility if you default on your payments. Adding a co-signer is a strong negotiating tool as it usually results in a lower interest rate. The co-signer assumes the risk in case of default and you receive the benefits of the co-signer’s good credit rating. But make sure you can pay up before taking on a co-signer. Don’t ruin a relationship and a loved one’s credit score by failing to make payments agreed.
Secure your loan with collateral.
I only recommend this option if you are securing a loan with a small amount of collateral that you can afford to part with. A secured credit card is great for rebuilding your credit. You make deposits into an account and this serves as your credit line for your credit card. Secured loans are useful when used properly. Secured credit cards are a great tool for rebuilding bad credit. Secured personal loans allow you to borrow cash against the value of financial instruments and properties. Never place your home or car title at risk just to get a loan! Some individuals use their home as collateral to get loans to pay off high interest unsecured debt. While this might seem like a wise financial move; it places your home in jeopardy. You are taking an unsecured debt and making it a secured debt that can result in you being foreclosed upon. Only secure loan financing with assets that you can avoid to part with and live without.
Check with your local credit union.
Credit unions are nonprofit organizations usually owned by their members so they are more open to lending money to a credit union member with bad credit.
Loan Tips
- Make sure you understand each and every clause in the loan agreement before actually signing anything or you could end up with exorbitant payment amounts, balloon payments, or adjustable interest rates.
- Scout the market for the lowest available rates
- Please ensure you are fully knowledgeable about your credit report and the factors affecting it. Credit reports can be downloaded online from websites such as annualcreditreport.com.
