What you should know

• You might still qualify for a personal loan even if your credit score is below 580.
• Lenders who focus on bad credit loans will probably dig deeper into your income and job history - not your credit.
• You can boost your chances of getting approved by going for a smaller loan, adding a co-signer, or using collateral to secure your loan.

Bad Credit? Need a Personal Loan? Follow These Steps

Getting a loan with bad credit can be tough, but it's not impossible. When your credit score is low, it can make it harder to borrow money, and lenders might charge you higher interest rates or give you stricter loan terms. Even with bad credit, you can still get the money you need. By being prepared and following some smart steps, you can improve your chances of getting a loan. This guide will share simple tips to help you get a loan, even if your credit isn't great.

Discover more: How to fix your credit fast

Average Interest Rates for Borrowers With Bad Credit

According to Credible, the average interest rates for Vantage Score ranges are as follows:

Steps to Secure a Loan with Bad Credit

To tackle these challenges, it's important to be smart about how you apply for a loan. Here are some key steps to improve your chances of getting approved:

To tackle these challenges, it's important to be smart about how you apply for a loan. Here are some key steps to improve your chances of getting approved:

Check Your Credit Report

Before you apply for a loan, check your credit report. This report shows your credit history, including your accounts, payment history, and late payments.

Get a Free Copy

You can get one free copy of your credit report from each of the three big credit companies (Equifax, Experian, and TransUnion) once a year. You can find your reports at AnnualCreditReport.com.

Look for Mistakes

Carefully check your report for errors, such as incorrect account balances, false hard inquiries, or late payments marked when they were on time.

Fix Mistakes

If you see any errors, report them to the credit bureau immediately. Fixing these mistakes can help improve your credit score and make it easier to get a loan.

Check Your Budget

Before you apply for a personal loan, it's important to know your finances. Your budget helps determine how much you can borrow and pay back each month.

Calculate Your Money

Make a list of all the monthly money you get, like your allowance or any jobs you do. Then, write down all the money you spend each month, such as rent, utilities, food, and other regular costs.

Figure Out How Much You Can Pay Back

Take the total money you earn and subtract your monthly expenses. This will show you how much money you have left to repay a loan. It helps you decide how much you can borrow without running out of money.

Find Ways to Save

If you don't have much left, look for things you can spend less on. Cutting back on things like eating out or entertainment can free up more money for loan payments.

Discover more: Simple ways to save money

Save for Emergencies

Make sure to save some money for unexpected things, like if your bike needs repairs. That way, you can still pay your loan if something unexpected happens.

Checking your budget helps you understand your money situation and shows you what you can afford to borrow.

Pre-Qualify

Before applying for a loan, it's a good idea to pre-qualify. This means lenders will give you an idea of how much money you can borrow and the interest based on a quick check of your credit. This step won't hurt your credit score and helps you understand your choices better.

Research Lenders

Look for lenders who help people with bad credit. You can check online lenders, local credit unions, or community banks, as they have easier rules than regular banks.

Compare Offers

Try to pre-qualify with several lenders to compare their offers, including interest rates and fees. This will help you find the best loan for your needs.

Check Eligibility

Make sure you understand each lender's rules to see if you qualify. Some lenders might need a specific credit score or a minimum income.

Know the Terms

Read all the details about the loans you are pre-qualified for. Look out for hidden fees or penalties that could make the loan more expensive.

Get Your Documents Ready

Having your documents ready can make getting a loan easier and improve your chances of getting approved. Lenders will need certain papers to check who you are and how much money you make.

1. Proof of Identity: Bring a government ID, such as a driver's license or passport.

2. Proof of Income: Collect documents that show how much money you earn, like pay stubs or tax returns.

3. Credit Report: Keep a copy of your credit report to discuss any mistakes or explain issues.

4. Debt List: Write down all your debts, such as credit cards or loans, with the amount you owe and your monthly payments.

5. Collateral Papers: If you want a secured loan, bring papers about the item you're using as collateral, like your car title.

Being organized with these documents makes the application process easier and shows the lender you are prepared.

Apply for a Loan

After checking your credit report, knowing your budget, pre-qualifying, and having your documents ready, it's time to apply for the loan. Here are some tips to help you succeed:

1. Choose the Right Lender: Pick a lender with friendly terms, such as good interest rates and low fees.

2. Apply Online or In-Person: You can apply online, which is easier, or talk directly with a loan officer in person.

3. Fill Out the Application Carefully: Complete the loan application accurately and without mistakes.

4. Be Honest About Your Credit: It's good to be open about your credit history. Lenders might appreciate your honesty.

5. Follow Up: After sending in your application, check with the lender to see if they got it and when you can expect an answer.

Boost Your Odds of Securing a Loan with Bad Credit

If you have a low credit score, you might have a hard time getting a personal loan. A score below 550 is considered low, but these tips increase your chances of getting a loan, even with a low credit score.

Ask for a Small Loan

When you apply, only ask for the amount of money you really need and can afford to pay back. If you ask for too much, the lender might think it's too risky and deny your request.

Discover more: What are the benefits of a small loan?

Add a Co-signer

A co-signer is someone, like a trusted friend or family member, who has a better credit score than you. They agree to help you pay back the loan if you can't. Even though they can't use the loan money, their good credit can make the lender more likely to approve your loan. Just remember, if you miss payments, it will hurt both your credit scores.

Discover more: How to get a loan with a co-signer

Include All Sources of Income

When applying for a loan, you can list all the money you receive, not just from a job. It includes things like child support, alimony, or Social Security payments. A higher income can make lenders feel more comfortable giving you a loan.

Discover more: How to get loans for independent contractors & gig workers

Add Collateral

Some loans are secured, meaning you promise something valuable, like money in a bank account or a car, to the lender. If you can't pay back the loan, the lender can take your collateral. This loan might help you qualify or get a lower interest rate, but be careful! If you don't repay the loan, you could lose your item.

Discover more: How do collateral loans work?

The Final Word

Getting a loan can be tricky, but following some important steps can make it easier. First, check your credit report to see what it says. Next, look at your budget to understand how much money you can spend. Then, get pre-qualified for a loan, which means lenders will give you an idea of how much you can borrow.

After that, gather all the necessary documents, like proof of income and identification. Now, you're ready to apply for the loan! Consider asking someone to be a co-signer for you, which means they agree to help you pay it back if you can't. Or you could offer something valuable as collateral to secure the loan.

Remember, each step shows lenders that you are trying to be responsible with your money, even if your credit isn't great. With some patience and hard work, you can find a loan that helps you reach your goals and starts to improve your credit.

Discover How Your Credit Score Stacks Up Across U.S. States