If you have bad credit, you may have difficulty qualifying for a personal loan without a cosigner because many lenders only accept customers with good to exceptional credit. Even if you do qualify, you will almost certainly be charged a high interest rate and fees.
Fortunately, some lenders provide personal loans for customers with negative credit. Before selecting a lender, evaluate their eligibility requirements, borrowing fees, loan terms, and the kind of amenities they offer.
Examine your other credentials
When you apply for a personal loan, your credit isn’t the only thing a lender looks at. Lenders typically analyse your income as well as your debt-to-income (DTI) ratio.
Your DTI is calculated by comparing your monthly gross income to your monthly debt load. If your gross monthly income is $5,000 and your monthly debt is $2,500, your DTI is 50%.
Lenders have different minimum income and DTI criteria. You can learn more about them by visiting a lender’s website or calling its customer service staff.
Look for lenders who take into account variables other than credit score
When you apply for a personal loan, most lenders will look at your credit and income, but some will look at non-traditional indicators as well. Upstart, for example, takes your degree and experience into account. It may be easier to be authorized if you locate a lender who looks at more than just your credit score.
Determine loan costs
The most crucial element to consider when comparing personal loans for bad credit is borrowing expenses. Borrowing costs are divided into two categories: interest rate and fees. Monthly interest is what you pay to the lender.
Lenders may charge an origination fee for completing your application, which is generally deducted from the amount of the loan. Furthermore, if you do not repay your loan on time or do not have enough funds in your account to make your monthly payment, you may be charged late or returned check fees.
While reviewing your alternatives, pay close attention to a lender’s quoted annual percentage rate (APR) range – it takes into account interest as well as any fees charged by the lender. Some lenders can let you pre-qualify for a personal loan.
Evaluate any extra features the lender has
Some lenders provide additional benefits to borrowers, such as the ability to postpone one monthly payment without incurring interest, as well as free FICO scores and credit reports. When weighing your options, it may be worthwhile to evaluate the value of these extra features.
Consider loan term and the effect on monthly payments
Loan terms differ depending on the lender. In general, a shorter loan term can save you money on interest, but your monthly payments will be greater. Choosing a longer loan term, on the other hand, may result in higher interest payments over the life of the loan.
Assume you get a $10,000 personal loan with a three-year term at 8%. In that situation, your anticipated monthly payment would be $313, with an interest payment of $1,281 over the life of the loan.
In comparison, if you borrowed the same amount for five years at 8%, your expected monthly payment would be $175. However, you would pay $2,624 in interest over the life of the loan.
See if you can get a secured loan
The majority of personal loans are unsecured. This means there is no need for collateral, such as a car title or a bank account, which a lender might seize if you fail to repay the loan. However, unsecured personal loans typically have severe credit standards, making it difficult to qualify for one with bad credit.
However, certain lenders do provide secured personal loan choices. Secured personal loans require collateral, however they may have fewer credit requirements and cheaper interest rates for consumers with negative credit.
Read: 4 Strategies to Pay Off Personal Loans Earlier
You can receive a personal loan even if you have low credit. Compare rates, terms, and fees from several lenders to find the best offer for your specific scenario. Pay close attention to essential elements such as eligibility conditions, loan terms, and APR range when purchasing.