7 Steps to Getting a Personal Loan With Bad Credit

by Christy Bieber | Published on Aug. 24, 2021

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Don't give up on getting a loan just because your credit isn't perfect.

Many lenders require borrowers to meet certain credit score requirements for a personal loan. For example, to qualify for a loan at the most competitive rate, you'll typically need a credit score of 740 or higher.

There are, however, many people who don't have perfect credit but who still need to borrow money. If you're one of them, you do have some options available. If you follow these seven steps, you should be able to find the right loan for you.

1. Try to improve your credit first

If you don't need a personal loan immediately, you can try to work on building credit before applying for one.

There are special types of personal loans, such as credit-builder loans, that almost anyone can qualify for. These types of personal loans help improve your credit score. They allow you to borrow up to a certain amount, such as $1,000 -- but the catch is, you make your payments first, before you get access to the money. Your on-time payments are reported to the credit reporting agencies so you improve your score.

Some other things you can do to improve your credit include:

Of course, none of these approaches will work when you need to borrow now.

2. Find a cosigner

Another great option for getting a personal loan with bad credit is to ask someone to cosign for you.

If you have a family member or friend with good credit, they may be willing to agree to vouch for you with the lender. While this would make them legally responsible for payment along with you, it also makes it much easier for you to get loan approval since the lender considers their credit as well as your own.

Often, a cosigner can help you get a personal loan with a good interest rate from a lender of your choosing.

3. Explore borrowing alternatives

If you can't find a cosigner, make sure that a personal loan is the best way to borrow.

You can consider other options, such as a 0% APR credit card. If you can qualify for one, you may be able to pay no interest for an introductory period of time. And sometimes qualifying for a credit card can be easier than getting a personal loan.

Just be aware that credit card interest is very expensive if you don't qualify for a special promotional rate, so this may not always be the best approach.

4. Reach out to lending institutions you do business with

If you definitely want a personal loan, you may want to try reaching out to a bank or credit union you're already doing business with. If you have an established relationship with them, they may be more willing to overlook your imperfect credit and give you a loan.

5. Research lenders offering bad credit loans

There are actually many bad credit personal loan lenders that specifically cater to borrowers with imperfect credit.

While the interest rate on these loans may be a little higher than for borrowers with good credit, it's still often possible to get a loan with reasonable terms when you need to borrow. Just research the options available to find a lender and submit a request for pre-approval to find out if you're likely to get the loan you need at a decent rate.

6. Ask for an in-person interview

If you're denied a loan due to your credit score, see if you can ask the loan officer to meet with you. You may be able to convince them that your past credit mistakes were the result of a situation that was out of your control and that has since been resolved.

This won't always work as sometimes lenders have strict guidelines they can't deviate from. But it's worth a try, especially if lenders do manual underwriting or if you have a good excuse for bad credit, such as an aversion to debt, which has prevented you from building a credit history.

7. Research loan terms carefully

Finally, if you are approved, make sure you carefully research and understand the personal loan repayment terms. You'll want to be certain the interest rate is reasonable, the payments are affordable, and the fees are minimal.

The good news is, if you follow these seven steps, you should hopefully have no problem finding a loan that's right for you.

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