For nearly all of us, a single disaster like a severe health complication or a legal battle can wipe out thousands in one fell swoop. Any of us can find ourselves needing a sudden cash infusion.
It’s at this moment when people tend to feel sorry for every decision they made that lowered their credit score.
If you have poor credit and you need a loan, you may have more options than you think. Follow these tips on how to get a loan with poor credit.
Tips for How to Get a Loan with Poor Credit
In some ways, your path toward a loan will depend on the type of loan you need. However, specific tips can set you up for a more straightforward quest in any situation.
1. Take Fast Measures to Improve Your Credit
It sounds frustrating that the best way to get a loan with poor credit is to stop having bad credit. You can make a more substantial difference in raising your credit score than you think within a short period, though.
One option is to lower your credit utilization ratio. Your utilization ratio refers to the percentage of your revolving credit that you’re using. In other words, how does your total balance on all your credit cards compare to the credit limits?
If your income has increased, update your data with your credit card providers. They may raise your credit limits accordingly. This lowers your utilization ratio, raising your credit score.
Another way to lower your utilization ratio is to pay down your balances. If you have the finances to do so or if you can borrow it from a friend, this can make a big difference.
2. Consider a Piggyback Credit Card Arrangement
Your payment history is another factor in your credit score. You can’t go back in time with your current credit accounts, but you can add credit accounts that already have strong histories.
If someone in your life is willing to, they can add you as an authorized user on one of their credit cards. That card’s low utilization ratio and strong payment history will then go onto your credit report as well as the original cardholder’s statement.
The result is a higher credit score for you with no change for the original cardholder. The only downside is that they run the risk of you making purchases on their card, so don’t betray their trust.
3. Show Your Financial Power
Your credit score is only one way to show a lender that you have the finances to pay them back. If it isn’t convincing, show them in another way by displaying your financial stability.
If you have a healthy savings account, bring those statements to show the lender. This indicates that you aren’t living paycheck-to-paycheck, so you can still pay them back if your income changes. You can also bring in pay stubs or deposit data to show that you bring in plenty of money to cover their payments.
The lender might ask for this in the application process. Still, you can always give them more than they’ve requested if it helps your case.
4. Research Loans for Bad Credit
Some lenders or loan products specialize in working with borrowers who have bad credit. These lenders know how to help people in your situation and will be more likely to give you the loan you need.
Research the lenders before you jump in, though. There are a small few out there that try to take advantage of low-credit lenders, so read plenty of reviews.
It’s also important to compare these options. Don’t assume that with low credit, you have to take anything you can get. Comparison shopping lets you know if you’re getting a solid offer.
Getting Different Types of Loans with Poor Credit
The tips above can help in any situation. However, there are other steps you can take, depending on the type of loan you need as well.
How to Get a Car Loan with Poor Credit
If you need a new set of wheels but don’t have the cash or the credit you wish you had, there are ways to boost your chances.
1. Get a Co-Signer
If there is someone close to you who has a healthy credit score, ask them to co-sign your auto loan. This puts both your names on the loan so that if you can’t pay, the lender can collect from the co-signer.
Of course, that doesn’t mean you have an exit strategy if you can’t afford the loan. Leaving your co-signer with the bill will burn that bridge in a hurry. It’s just as important to choose a car you can comfortably afford whether you have a co-signer or not.
2.Offer a Larger Down Payment
Money changes minds, especially when it comes in the form of an upfront down payment. Offering a higher down payment for the vehicle helps your chances for an auto loan in multiple ways.
First, it shows that you have more reliable financial stability because you have extra cash to pay. Second, it lowers your loan amount—the lower the loan amount, the less of a risk the lender is taking.
How to Get a Personal Loan with Bad Credit
A personal loan can be a great way to cover unexpected expenses, like vehicle repairs and medical bills. If getting funds is difficult, there are a few remedies.
1.Show Proof of Stability
Spontaneity may be something your date is looking for, but lenders like stability. They want to know that you have a steady income and a responsible lifestyle that isn’t like to affect your ability to pay the loan.
If you’ve been living in the same home or the same area for several years or more, bring proof to show the lender. The same goes for your job—the longer and more stable of a work history you have, the better.
It also helps to show evidence that you’re actively paying down your current bills like your mortgage or rent.
2.Pursue a Loan from Your Own Financial Institution
A loan agreement is based on trust. The length of a relationship you have with a financial institution, the more likely they are to trust you.
Before trying other lenders, apply for a loan through financial institutions you already use. The more accounts you have with them in good standing, the better.
How to Get a Home Loan with Poor Credit
Buying a home is a dream, so many people have, and it can be devastating when bad credit stands in the way. Try these strategies to make your dreams a reality despite your low credit score.
1.Try Federal Home Loan Programs
The Federal Housing Administration or FHA is a division of the Housing and Urban Development in the US. This organization has a unique program designed to help more Americans become homeowners.
The FHA home loan program doesn’t administer loans. Instead, it insures you as a borrower. Your lender has the reassurance that if you default on your payments, the FHA will step in and pay them back.
If you’re a service member or veteran, the Department of Veterans Affairs offers a similar program as well.
2.Investigate Programs for First-Time Home Buyers in Your Area
In addition to the FHA and VA loan programs, you may have other options depending on where you live. Many states and local governments offer programs to help first-time home buyers. There are even non-profit organizations in some areas that work the same way.
Some of these programs insure your loan as the federal programs do. Others will administer loans.
Some programs offer grants to cover part of your down payment. This allows you to put down a larger down payment, making you more likely to get the home loan you need.
How to Get a Home Equity Loan with Poor Credit
What do you do if you already have a home, and you want to take out a home equity loan? You may not be able to use government programs for homebuyers, but there are other avenues to pursue.
1.Consider a Cash-Out Refinance Instead
If you’re struggling to get a home equity loan, the loan may not be what you need at all. Instead of adding a second mortgage, you could complete a cash-out refinance for your current mortgage.
In this process, you refinance your mortgage while taking out part of the mortgage in cash. You can work with your existing lender or a new lender. Better yet, compare the deals you can get with multiple options.
The financial impact of refinancing will be the same: you get cash in exchange for adding it onto your mortgage. However, lenders are usually less rigid with credit restrictions when they refinance compared to adding a second mortgage.
2.Change Your Debt-to-Income Ratio
Much like when you originally bought your house, your debt-to-income ratio is a big part of the puzzle with a home equity loan. There are two ways to improve your DTI: pay down debt or increase your income.
If you need cash, the chances are that you’d have a hard time paying down your debt. Increasing your income is easier. It could be worth getting a part-time job, at least temporarily, to raise your revenue to get your loan.
How to Get a Business Loan with Poor Credit
A business loan can be a very different circumstance than a loan toward your personal finances because the business’s finances are so separate from yours. Still, there are ways to improve your chances.
1.Solidify Your Business Plan
Business loans are unique because lenders don’t only consider finances when making the decision. They also want to know that your business has a strong chance for success because this affects your ability to keep making payments.
Your business plan plays a part in that decision. You need it to be thorough, well-researched, and well-planned. You need accurate data about the market and revenue projections you can back up.
If your business is already established, the chances are that you have more options for collateral than you think. Every bit helps you get the loan you need.
Your business assets can serve as collateral, and so can your existing inventory. Some lenders will even accept your outstanding receivables as collateral. This is helpful for businesses that are having cash flow issues because of their customers’ payment schedules.
Unless you have no other options, try not to use your assets as collateral for a business loan. It would be terrible enough to lose your business, and losing your financial stability makes it far worse.
Getting the Loan You Need with Any Credit Score
If you’re trying to get a loan and you get rejection after rejection, it starts to feel hopeless in a hurry. Consider us to be your joyful messengers: there is hope.
Depending on the type of loan you need, the tips above can help you succeed. When you do get your loan, make credit improvement your top priority. The more time you give yourself to boost your credit, the more comfortable life will be the next time you need a loan.
If you want more tips on how to get a loan with poor credit or other tips for financial health, check out more of our finance blogs or compare your loan options on our website.