It is commonly known that people who have poor credit histories find it more difficult to secure a loan than those with excellent credit histories. The fact that low scores suggest poor money management skills and a failure to meet financial obligations means traditional lenders hesitate when considering their applications. But it is still possible to get personal loans with bad credit scores.
The fact is that the even lenders recognize that for many people, their score is not down to their own foolish money management. Often, it is a result of circumstances out of their control, and so securing loan approval is still possible. The trick is to convince the lender that this is the case.
The good news is that there are several ways to do this, and so a personal loan can be secured. But what are the specific steps to take?
Secured or Unsecured Loans
A lot depends on the type of loan that is being sought, and there are two basic types: secured and unsecured loans. The chief difference between the two is that secured loans come with collateral, from which lenders can get compensation should the borrower default. And when approving personal loans with bad credit, default is a real possibility.
Secured loans have definite advantages, with lower interest rates charged due to the lower perceived risk. This makes these loans more affordable, and with collateral provided, securing loan approval is much more straightforward. However, finding collateral to the value of the loan sum can be tricky. And if there is a default, then the item is lost.
Unsecured personal loans have higher interest rates, and are much more difficult to get approval on. There are compromises to make if the green light is to be secured, and this is where borrowers have to go the extra mile.
Show Signs of Improvement
The first productive step towards securing a loan without the benefit of collateral is to increase the credit score. When it comes to seeking personal loans with bad credit, having evidence that things are on the up is a very welcome sign for lenders. It also shows a commitment on the part of the applicant.
There is only one way to improve the credit score, and that is to reduce the existing debt. The most effective way to do this is to take out some small loans to clear individual debts, like an outstanding credit card debt or late bill payments. These payday loans are expensive so need to be budgeted carefully, but provided the paycheck is larger enough, securing loan approval is a formality.
A second option is to get a consolidation loan to clear all the existing debts. This should result in a reduction in monthly outgoings, with the debts replaced by one single loan repayment. Once a debt is cleared, regardless of how it is done, the credit score improves and personal loans become more accessible.
Where to Get One
The most plausible place to secure a personal loan with bad credit is online, where lenders offer better terms to bad credit borrowers. They are recognized bad credit lenders with loan packages designed for those who have low scores, or are in a tight financial situation.
As a result, securing loan approval is fairly easy too once the basic criteria are met. This criteria includes being over 18, being a US citizen and having full-time gainful employment. Of course, it is important to check out the reputation of online lenders, so take some time to visit the Better Business Bureau or Verify1st websites before committing to a personal loan.