Getting a $5,000 personal loan can be difficult, especially if you have bad credit, since your credit score is the main metric that lenders look at when assessing your eligibility. Unfortunately, those with low credit scores will typically receive higher interest rates than their counterparts with great credit scores. However, there are strategies that can be implemented, even if you have poor credit, that can help you secure a personal loan. In this article, we’ll delve deep into some strategies you can use to secure a personal loan with bad credit.
Understanding personal loans for people with bad credit
A bad credit personal loan is a type of personal loan that’s designed for people with low credit scores. Oftentimes, those with low credit scores either have a limited credit history or they have blemishes on their credit report. Since banks see people with bad credit scores as risky borrowers, they often limit their total loan amounts. Additionally, those with low credit scores will have high personal loan rates than those with good credit scores.
Tips to secure a $5,000 personal loan with bad credit
Check your credit report
As many of us know, lenders will check your FICO score (credit score) when you apply for a loan to assess your creditworthiness. Unfortunately, people often have bad credit, not because of their own actions, but because their identity has been stolen. Before seeking a loan, be sure to check your credit report, and dispute any unrecognized or fraudulent activity with the three major credit bureaus, Equifax, TransUnion, and Experian.
Consider a secured personal loan
Most personal loans are unsecured loans, meaning that if you don’t pay the loan back, the bank has no recourse against you, meaning there is nothing that they can repossess. This, of course, is more risky for the bank, especially when you have bad credit. A great alternative that will help you lower your rate is a
secured personal loan. If you have assets that you own outright, like a car, you can put them up as collateral for a secured personal loan. This will help you lower your annual percentage rate, enjoy favourable repayment terms and potentially qualify for a larger loan amount because the bank will be able to repossess your collateral and sell it off, should you stop making payments on the loan.
Use a co-signer
A co-signer is a great way to get approved for both lower interest rates, and higher loan amounts. However, when you apply with a co-signer, you need to make sure you pick the right person. After all, if your co-signer also has bad credit, that likely won’t help you out very much. It’s important that your co-signer has good credit, as that will vastly improve your odds of getting a higher loan amount and better interest rate.
Get a few rate quotes
Nowadays, getting a bunch of different quotes from several financial institutions is easier than ever before. Through the power of the internet, you can apply for loans at banks, credit unions, and online lenders from the comfort of your own home. Once you’ve got several rate/term quotes from a few different lenders, you can compare them side by side, and pick out the one that best fits your financial needs!
Watch out for hidden fees
Unfortunately, late fees, prepayment penalty, hidden charges and high interest rates are commonplace in the world of bad credit loans. Although it’s hard to avoid high interest rates, you can avoid hidden fees - you just need to be vigilant. Setting up autopay can help you get a discount on the interest rate.
The bad credit loan space is full of predatory lenders that charge borrowers fees that are hidden within the terms and conditions of your loan. They prey on people who need the money, and don’t take the time to read through the fine print. Borrowers are then shocked when they’re charged hefty fees for paying off their loans early, or simply just for the lender to originate the loan. That’s why reading through all of the paperwork a lender provides is pivotal, especially when you’re dealing with a financial institution that you haven’t heard of before.
A note about payday loans
If you’re looking for a personal loan and you have bad credit or fair credit, you may consider a
payday loan. These work like a cash advance and are small loans available with no credit inquiry. They have no credit check, no minimum credit score requirement, a quick loan approval and you could receive the money in your bank account on the next business day. Although they may seem like a good idea in the moment, payday loans often present more harm than good. Payday loans are a predatory form of loan that charges exorbitant interest rates - so much so that they have been outlawed in 14 different states and the District of Columbia.
Payday loan lenders often charge borrowers hundreds of percentage points in interest, making them incredibly difficult to pay back without taking out another payday loan, leading to a cycle of financial ruin. It’s important that you have exhausted every
other means of borrowing money before you even consider a payday loan. They should be an absolute last resort.
The bottom line
Although securing a $5,000 personal loan when you have bad credit can be difficult, it’s certainly possible, especially when you follow the steps that we’ve outlined above. When applying for personal loans, just be sure you’re reading all of the fine print and making sure that you won’t be charged any prepayment penalties or costly origination fees. These fees are often snuck into contracts by lenders, which significantly increases your overall cost of borrowing. Compare all the loan options from different providers and look at ways you can reduce the overall cost of borrowing.
If your financial situation is tight and you are in need of funds, consider debt consolidation loans, balance transfer or look at ways to improve your credit so that you can enjoy favourable loan terms. Using a personal loan calculator can help estimate the monthly payments before you begin the application process. Ultimately, the best personal loan is the one that fits your budget and personal finance situation.
