Online personal loans can keep you on track when you are short of cash. But when you are financially unstable, you may have failed to pay your credit card bills on time. Late payments alone can highly affect your credit score.
Moneylenders often consider several factors before they can approve your loan application. These factors include; your monthly income, age, credit history, savings, employment, and monthly expenses. If you have a bad credit score, it becomes a good reason for them to reject your loan application.
But does that mean you cannot get a loan when you need it the most? Of course not.
There are many options for getting personal loans online with bad credit. But before giving our top recommendations, I think it’s a good idea to know the type of personal loan you want. Understanding these different loan types will save you much trouble in the future.
6 Types of Personal Loans Online you could get with Bad Credit.
If you have bad credit, here are the types of loans still open to you online:
Backed by collateral, a secured loan generally comes with more considerable amounts and low-interest rates. Even if you have a bad credit score, you can put down your car, property, jewelry, or other assets as collateral. However, if you fail to repay this loan, the lender will become the asset owner and sell it to recover their money.
Payday loans are short-term loans for a few weeks only, and the amount you can get is not more than $2500. The repayment of this loan is usually due on the day of your coming paycheck.
However, be ready to pay a hefty amount of fees to get this fast cash. Often, lenders who offer payday loans do not check your credit score. So, it is easier for you to get approval for this type of loan quickly.
Cash Advance Loans:
Cash advance loans are another type of short-term loan that you can get from your credit card company. The sum that you can receive depends on the amount of credit balance available on your card.
If you urgently need cash, a cash advance can be a fast way to get it even when you have a bad credit score. However, the interest rate may be higher than that of a personal loan.
If you have a sudden unexpected expense, this type of loan can be your saving grace. However, it does not come with a grace period. The interest amount adds up immediately if you don’t repay on time. So, only use this loan option in case of an emergency.
Many banks have the policy to offer short-term loans in the form of overdraft agreements. However, the availability of this overdraft depends on whether you can keep your bank account open and the history of your banking transactions.
If you have a good relationship with your bank, you can quickly get this type of loan. By a good relationship, I mean you should have some steady income in your bank account. Get in touch directly with your bank and ask whether they have this policy.
Home Equity Loan:
Like a secured loan, you receive a home equity loan in lumpsum amount and pay it back in monthly installments. To get this type of loan, you have to put your property as collateral. If you fail to repay your loan, the lender will seize it and sell to get their money back.
Because these are secured loans, they can be available at low interest rates even if you have a low credit score. However, remember, your home will be at stake if you don’t repay it on time. Go for this kind of loan if you need a significant amount of money all at once.
HELOC or home equity line of credit is similar to a home equity loan. Your home also secures the loan amount you get. It is also identical to a credit card, through which you can borrow money only according to your needs and then repay it with variable interest rates.
It is a good option if you don’t know the exact amount you might need. I like this type of personal loan because you don’t waste money on what you don’t need at the moment. You can use this loan to pay your utility bills or go through a small home improvement project.
All in all, it is a good loan option for those who have a bad credit score, though your property will be at stake.
Factors to Look for in an Online Bad Credit Loan Provider
You have a bad credit score and finding a loan is difficult for you. But that doesn’t mean you can rush towards any loan provider who agrees to give you a loan. You should still conduct a little bit of research while choosing a lender. Here are a few factors to consider:
Go through the list of eligibility requirements they ask for. These may include minimum credit rating, minimum income, a maximum ratio of debt to income, Etc. Choose a lender as per your financial condition.
Fees and Interest Rates:
Give attention to the criteria they use to calculate costs and interest rates. Ask for quotes from 3-4 lenders, compare their rates, and determine which offers you the cheapest interest rate. Also, take into account expenses like pre-payment charges and other fees.
Terms of Repayment:
Repayment terms can range anywhere between 1 to 12 years. However, you have to repay loans like payday loans immediately after you receive your next paycheck.
A shorter loan term will help you get out of your debt soon, improve your credit score, and pay less interest. In contrast, a longer loan term may reduce the rate of your monthly payments. However, you will end up paying much more as interest over the extended repayment period.
Type of Lender:
Many types of lenders can give you a loan on bad credit, such as online lenders, banks, and credit unions. The lender you choose depends on the nature of the loan requirement. Online lenders usually offer low-interest rates than banks, but you can’t trust all of them.
Tips to Get a Loan Online with Bad Credit
There are a few tips when it comes to getting personal loans online with bad credit. These tips will significantly increase your loan approval chances. Let’s take a look at some of these tips.
Use your employment details to prove your ability to repay:
When a lender puts aside your credit score, and they’re ready to give you a loan, the next thing they will consider is your income. You have to provide them with the assurance that you will pay your loan on time.
You can prove your credibility by giving them details about your employment and its stability. You could also include your three months payslip to increase your chances.
Secure a Co-Signer or Guarantor:
It would become easier for you to secure a loan if you have a guarantor or co-signer. When you do this, the lender will consider your guarantor’s credit rating. After which, your chances of having the loan approval can increase significantly.
A guarantor will assure your lender that you won’t default on your repayment. Your guarantor could be your partner, a friend, a relative, or even your boss.
Place a Collateral:
You could also place collateral to get your loan approved quickly. This collateral can be anything of value that you own, such as your car, home, jewelry, something of higher value.
Note: If you fail to repay your loan, the lender gets the legal right over your collateral. They can seize it and sell it out to bring back the loan amount they gave you a loan.
Apply for a Low Amount:
With a bad credit score, you already have low chances of loan approval. In such a situation, if you ask for a hefty amount as a loan, you further increase your chances of getting loan rejection. So, ask for the minimum amount of loan that can suffice your current needs.
A low amount will assure the lender of your ability to repay the loan with lower default chances. The lender may agree to give you a small loan amount for a higher interest rate but may not risk a massive amount on you.
Improve Your Credit Score:
Go through your credit statement and see if any wrong entries might be hampering your credit score. In case you notice any errors, contact your credit agency and pinpoint the issues in it.
So, if you have a bad credit score, don’t worry! You still have many options to grab a personal loan and get rid of your financial crunch.
However, do a little research of the market and see what the available options are. Once you manage to get a loan online, make sincere efforts to repay it on time. On-time repayments will improve your credit score over time, and you could be back on track with financial stability.