Banks and other financial institutions help people in financial crisis by providing loans. Personal loans are the most popular ones among them. These loans are easy with minimum requirements, such as a good personal credit score.
However, how to get approved for a personal loan with bad credit? Several ways can get you a personal loan despite having poor credit scores. First, get a co-signer, a co-borrower, a secured personal loan, a loan from lenders like pawnshops, and so on.
Here, our top financial advisors explain this context.
Relation Between Personal Loan Approval and Credit Score
In general, personal loans are unsecured. You need no collateral for a repayment guarantee. So, the lenders critically examine your credit score to evaluate your application. Considering my credit score, what APR should I expect for a personal loan?
Per US financial standards, a healthy credit score indicates that you are good at managing personal finances and serious about paying off your debts. In short, a high credit score is a guarantee to the lender that you will return the money with interest and within the given timeline.
Note: A high credit score can get some benefits like low interest rates, extended payoff periods, etc.
Critical Analysis on How to Get Approved for a Personal Loan with Bad Credit
Here, we inform you of some effective approaches to getting a personal loan with a bad credit score.
Get Help from a Co-Signer
If you have a low credit score, adding a co-signer can help you out. A co-signer is a guarantee for the lender for your personal loan approval. When you and your co-signer join, you take equal responsibility for the loan. Besides, Explore personal loan refinancing options today.
For example, if there are any late payments you make, it will negatively impact both of your credit scores. Moreover, failing to repay the loan will give the lender the right to take legal action against both parties for default.
Amazingly, your co-signer only bears the responsibility of paying back the borrowed amount. He or she will not have authority over your loan funds. And also, the person has no right to file any legal claims for the borrowed money. Below are the requirements of an ideal co-signer to get your personal loan approved.
- A good or excellent credit score: As you have a low credit score, your co-signer must have a credit score above 690, which is usually considered an excellent credit score.
- Low DTI ratio: Your co-signer must have a low debt-to-income ratio. We suggest you find a co-signer with below 40% DTI.
- A good credit history: The co-signer must have a good credit history with no loan defaulting case.
- Healthy income: It is also crucial that your co-signer’s income statement proves that he or she earns a sufficient amount of money per month, which can cover personal expenses and the monthly payment as well.
Get a Co-borrower
The act of a co-borrower is nearly similar to the concept of taking a personal loan by adding a co-signer. Adding a co-borrower with a strong credit history enhances your chances of approval and gives access to more favorable loan terms.
However, there is a core difference between adding a co-signer and a co-borrower. A co-borrower holds an equal share of the loan amount. This arrangement often leads people to use joint personal loans for shared expenses, such as purchasing a property together.
Adding a co-borrower is also a lucrative option, as some lenders have no provision for co-signers. The requirements of an ideal co-borrower are the same as a co-signer.
Take a Secured Personal Loan
A secured personal loan is a good choice if you cannot get a regular one due to a bad credit score. With this option, you offer some valuable assets to the lender as a backup in case your credit is not great. However, we must warn you that if you cannot repay the loan, the lender can take that valuable thing you put up as collateral.
We recommend you go for a small amount and provide less valuable collateral. In this case, we suggest you provide your car as collateral, not your home.
Taking a Personal Loan from Lenders with No Credit Score Requirement
Some individual lenders and pawnshops are eager to lend you money even if you have a bad credit score. You can borrow money from them by guaranteeing any tangible asset.
If you fail to repay the loan plus interest, they will take your valuables. Also, you must know that this type of lender usually asks for a very high-interest rate.
So, we recommend you do proper research and background checks before making loan deals with such a lender. Moreover, get the differences between a personal loan and a credit card.
Hence, how to get approved for a personal loan with bad credit? We expect that now you have a clear idea. You can apply any of the above-mentioned approaches to get a personal loan.
Finally, we offer two basic suggestions here. First, examine your credit score and history to locate errors that are degrading your score. If you find any misinformation, request for correction. Second, compare lenders and consult with them in person if possible. You may find one lender that accepts your bad credit score without a fuss.