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March 13, 2020

How to Get a Loan with Bad Credit Score

Getting a loan is quite difficult for people with a bad credit score due to financial challenges or the struggle to build credit scores for the first time. Everyone knows how loans can be your savior when there is a financial emergency but with a bad credit score, it may seem like the world is working against you as every means to get a loan proves abortive.

A bad credit loan is for those who struggle with getting a loan due to their credit scores and it is a lot similar to a personal loan. This allows you to pay in installments with low-interest rates in some cases.

What is a Bad Credit Score?

Credit scores are simply a measure of how likely you are to pay back a loan. It ranges from 300 to 850, with anything below 650 considered as a bad credit score and below 620, an extremely poor credit score. If you, however, fall into this category, all hope isn’t lost. You can still get a loan, as there are many other options to consider.

Below are some effective ways to get a loan with bad credit:

1. Get a Home Equity Line of Credit

A home equity line of credit is secured by your home and gives you a credit line that can be used for large expenses. It can also be used to consolidate higher interest rates on other debts. If you have enough equity in your home, as a homeowner, you may be eligible for a line of credit. To get this form of credit, your home value must be at least 15% more than you owe and a reliable source of income to help you pay in time. The downside of this is that you risk losing your home if you can’t repay the debt but there are very little chances of that happening if you are disciplined. 

2. Explore Lending Platforms

Credit Unions are known for their small dividends and discounted loan rates compared to banks. You could visit mycreditunion.gov and bankrate.com to find a suitable one. There are also other lenders such as Upstart that is designed for individuals with no credit history and OneMain Financial for those with a poor credit rating. There are also peer to peer (P2P) lenders platform such as Lending Club that connects you directly to an individual who loans you. Explore as many options as you can and compare their rates to know which works best for you. 

3. Family and Friends

Getting a loan from family and friends is an easier way out of a bad credit score and should be the last resort. To avoid common financial issues that tear relationships apart, it’s always advisable to prepare a written agreement that states all the terms, including when and how you will pay and the agreed interest rate if it applies. There should also be room for penalty if you do not pay as agreed.

Getting access to loans with a bad credit score may prove difficult but it is not impossible.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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