What to know when applying for a personal loan with bad credit

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When it comes to paying for some of life’s biggest expenses – a home renovation, a big medical bill, an emergency, a wedding or even a funeral – sometimes it can be easy to find yourself short of money. to cover these costs. And if your savings don’t match the amount of money you’ll need to cover those expenses, you may need to find a way to cover the difference.

This is where a personal loan can come in handy. Personal loans are actually one of the fastest growing categories of debt in the United States, in part because they offer flexibility that some credit cards don’t: higher interest rates down and the ability to receive a lump sum directly deposited into your bank account so that you can use it as needed.

When you take on debt of any form, it’s usually ideal to apply with good or excellent credit in order to get the best loan terms. But if you find yourself applying for a personal loan with poor credit, there are still options for you – you just need to keep a few things in mind before you start the application process.

Can you get approved for a personal loan with bad credit?

Your Credit history and credit scores are important because they provide lenders with clues to determine if they think you will be a responsible borrower who will repay the loan on time and in full. Keeping your credit score healthy can really be an asset when applying for loans for big purchases like buying a house or buying a car.

While it’s possible to get approved for a personal loan if you have poor credit, the final decision, for the most part, rests with the lender you apply to. Some lenders will tell you upfront what their minimum requirements are. Personal loan repayment, for example, requires a FICO score of 640 (which is in the “fair” range) or higher for approval.

Some lenders will actually cater to those with poor (or no) credit. Beginner personal loans, for example, will accept a FICO or Vantage score as low as 600, but they also accept applicants who have not yet built up a sufficient credit history. OneMain Financial also approves applicants who have poor or fair credit for their personal loan products. (See our roundup of the best personal lenders for bad credit for more options.)

Beginner personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, credit card refinancing, marriage, moving or medical

  • Loan amounts

  • terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so poor that they have no credit score)

  • Assembly costs

    0% to 8% of target amount

  • Prepayment penalty

  • Late charge

    Greater of 5% of monthly amount past due or $15

OneMain Financial Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, big expenses, emergency expenses

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

    Flat fee from $25 to $1,000 or percentage ranging from 1% to 10% (depending on your state)

  • Prepayment penalty

  • Late charge

    Up to $30 per late payment or up to 15% (depending on your state)

What interest rates are you eligible for?

When you apply for any form of credit, the better your credit, the more likely you are to get favorable terms, like lower interest rates. This is also the case with personal loans. If you have poor credit, you are likely to receive a higher interest rate on your loan. This means that you will spend more money to repay the loan.

Of course, the exact interest rate you ultimately receive will depend on the range of the lender, but you can compare personal loans before submitting your application. This way you can be sure to get the loan with the best terms for you.

Compare offers to find the best loan

When looking for a personal loan, it can be helpful to compare several different offers to find the best interest rate and payment terms for your needs. With this comparison tool, all you need to do is answer a few questions and Even Financial will determine the best offers for you. The service is free, secure and does not affect your credit score.

Editorial note: The tool is provided and powered by Even Financial, a search and comparison engine that connects you with third-party lenders. Any information you provide is transmitted directly to Even Financial. Select does not have access to any data you provide. Select may earn an affiliate commission on partner offers in the Even Financial tool. The commission does not influence the selection in the order of the offers.

It’s also worth noting that in some cases it may make more sense to use a credit card with a 0% APR introductory period, as you can finance your purchase and make payments for the balance without being charged extra. interest for a fixed term. time. the Citi Simplicity® Card, for example, gives you a 0% period of 12 months (after, 14.74% to 24.74% variable APR). This option is only optimal if the credit limit is sufficient to cover your expenses and you are sure that you can pay off the entire balance before the end of the 0% APR period.

How long will you have to repay the loan?

The time you have to repay a personal loan is often referred to as the “term” of the loan. Like interest rates and credit score requirements, loan terms can vary from lender to lender. The good news is that this information is usually provided up front so you can immediately determine if the repayment schedule is right for you.

Loan terms can be as short as six months and as long as seven years. When you take out a loan that gives you more time to pay off the balance, you’ll likely have smaller monthly payments — though be aware that a longer term means you’ll end up paying more interest over time. . Shorter terms, on the other hand, could result in a higher monthly payment, but less accrued interest over the term of the loan.

How will a personal loan affect your credit score?

There are several ways to request and subscribe to a personal loan can affect your credit.

As with any other loan, mortgage, or credit card application, applying for a personal loan can cause your credit score to drop slightly. This is because lenders will need to do a thorough investigation of your credit, and each time a thorough investigation is done, it shows up on your credit report and your score drops a little. Keep in mind, however, that this drop is only temporary, and maintaining good credit habits can raise your score again over time.

That being said, it pays to be as strategic as possible about when you decide to apply for a personal loan. Applying for a personal loan soon after applying for a new credit card could result in an even bigger drop in your credit score because a thorough investigation would be done for both applications.

On the plus side, taking out a personal loan can actually improve your credit score because you build a track record for making payments on time. This is especially true if you have been approved by a lender that accepts applicants with poor credit records. Payment history is the most important factor in calculating your credit score, accounting for 35% of it. Making your monthly payments on time and in full can provide clues to a lender that you are very likely to repay the money you borrow in the future. By making regular, on-time payments, your credit score is likely to increase.

A personal loan can also help you improve your credit mix. Your credit mix refers to the different types of credit accounts you have, including credit cards, student loans, mortgages, etc., and represents 10% of your credit score.

That’s not to say you should go out of your way to take on different types of debt, but having a variety of accounts can show lenders that you have the ability to handle multiple types of credit. This can make you look more like a creditworthy borrower (just make sure you don’t go into too much debt).

At the end of the line

Personal loans – and the thought of taking on more debt – can seem daunting, especially if you already have a poor credit score or no credit history. But when used responsibly, they can help you cover an important and necessary expense and improve your credit score when you make payments on time. If you’re applying for a personal loan with poor credit, you’ll just need to keep the above things in mind so you don’t feel caught out during the process.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

About Pia Miller

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