A personal loan can help you make that home improvement you have been wanting for a long time or pursue the higher education of your choice. However, the application for a loan often gets declined when you have a low credit score or no credit history. Things have now become simpler, with lenders approving your application, even when you have a negative credit listing. If you, too, want to apply for a personal loan with bad credit, some information will help you in the process. Below are the details.
Aid loan approval and improve credit score
You can improve your chances of getting your loan approved by applying for a small amount of credit, offering security and meeting the eligibility criteria. Moreover, if you wish to improve your credit score for future borrowing, make sure your credit card, mortgage, rent and utility bills are paid on time. Also, try not to apply for too many loans at once, which may affect your credit score.
Loan types
Guarantor personal loans
Guarantor personal loans involve an individual guaranteeing the loan repayment within the given timeframe. It can be a relative, parent or spouse. The guarantor bears the responsibility of paying the loan even if you cannot repay it. However, the guarantor needs to have a good credit history. Also, they must own a property and use it as a form of security against the loan. Having a guarantor will strengthen your application and the chances of reducing the lender’s risks. Moreover, you also can receive competitive interest rates and approval for high loan amounts.
Secured personal loans
If you have a bad credit history and want to apply for a personal loan, you can consider a secured loan. It involves securing a loan with an asset like a car, home, or valuables. A secured personal loan reduces the risks to a lender, as if you fail to make loan repayments on time or other loan terms are not met, the lender can use the asset to cover the costs. It means that the lender can claim your asset as compensation.
Medium-term loans
If you are considering borrowing more than $2,000, you can find lenders offering medium-term loans up to $ 10,000. However, keep in mind that loans above $2,000 come with high rates of interest.
Short term loans
If you want to apply for a personal loan with bad credit for the short term, you may incur high charges. Short-term loans include short terms of repayment and small borrowing amounts. Lenders in this kind of loan offer up to $2000 with repayment terms ranging between 16 days and one year. The eligibility for getting such loans depends on the borrower’s financial circumstances and the ability to repay the loan within the given timeframe.
Cost of medium- and short-term loans
The cost of medium- and short-term loans vary depending on the loan type and amount borrowed. Loans between $2000 and $5000 with terms of 16 days to 2 years have an establishment fee of $400. The maximum interest rate may be 48 percent per annum, including all other charges.
The charges of loans above $5000 with terms over two years cannot exceed 48 percent per annum. Loans under $2,000 with terms ranging between 16 days and 12 months have an establishment fee of 20 percent and a monthly fee of 4 percent of the loan amount.
You must do thorough research and fulfill all the prerequisites before applying for a personal loan and increase the chances of approval.