1.) Understand Your Credit Score
A lender is going to check your credit score, which means you should have a clear understanding of this score. If you do not know your 3-digit FICO score, you can check it with your bank or you can request your score from FICO themselves. Once you have this information, focus on improving this score. This can be done by, for example, paying your bills on time and by using less than 30% of your credit limit.
2.) Are Personal Installment Lenders an Option?
Improving your credit score before applying for a personal loan is ideal however, emergencies do happen and often, you cannot wait and need funds immediately. While a payday loan might be appealing, there is a better option – a personal installment loan. These types of loans can be used to consolidate higher-interest debt or to cover emergency expenses. Personal installment lenders consider a variety of factors when evaluating a loan application, such as income and other assets, and they do not focus solely on one’s credit score.
3.) A Payday Loan is NOT an Option
If you have a bad credit score and the bank has turned down your loan application, do not turn to ‘quick cash’, such as payday loans, as they are extremely dangerous. While a payday lender will likely give you the personal loan that you need, you will need to pay for it. The catch however, is that this type of loan often comes with an annual percentage rate (APR) of 350% or more. These rates are so high that borrowers get trapped in these loans, with no exit and a continuous increase in debt.
4.) Consider a Secured Loan
If you have bad credit, you could consider a secured loan. With these types of loans,you will need to offer an asset, such as a car or your home, as collateral. As a result,lenders are more likely to approve a loan as they have the security that they can take possession of the asset in order to cover their losses if you fail to repay the loan. While this sounds like an ideal option, do not put anything on the line if you are not sure that you will be able to pay back the loan.
5.) Getting a Co-Signer is an Option
If you are a borrower with bad credit, you could consider getting a co-signer on a personal loan. With a co-signer, the interest rate for the loan is then calculated based on the credit rating of the person you sign with. While you might have someone with a good credit score who is willing to co-sign on your loan application, it is important to remember that if you fail to pay back the loan, the co-signer will be equally responsible for loan payments. The bottom line is, if you fall behind on your repayments, your co-signer will suffer for it.
In the End, Personal Loans Should be a Long-term Fix, Not a Short-term One
The most important thing about taking out a personal installment loan, a secured loan, or even getting a co-signer is knowing that this is going to be a long-term fix, and not something that is simply going to make things a bit easier for the short term. After all, the last thing you want to do is repeat this cycle. Make sure that you have a longer-term plan to not only clean up your credit, but to get rid of your debts in general.