Top 5 Loans for Borrowers With Bad Credit

Let’s face it – not everyone has a perfect credit score. Life happens, and sometimes your credit takes a hit. 

But having a less-than-stellar credit doesn’t mean you’re out of luck when it comes to borrowing. There are lenders out there willing to extend a helping hand. 

When exploring these options, take into account the loan amount, interest rate, repayment terms, and any potential fees. Each of these factors can significantly impact the total cost of your loan. 

While certain lenders are more accommodating to those with bad credit, improving your credit score will always lead to better terms and lower interest rates. Let’s explore the landscape a bit more and see how you can increase your chances of loan approval.

1. OneMain Financial

OneMain Financial has been around for over 100 years and specializes in providing personal loans to borrowers with poor to fair credit. Average APRs range from 18% to 35.99%, and loan amounts from $1,500 to $20,000. They offer both secured and unsecured loans with terms between 24 to 60 months. One main plus? You can check loan options without dinging your credit score.

2. Avant

Avant is an online lender known for working with borrowers with low credit scores. They offer loans ranging from $2,000 to $35,000 with APRs between 9.95% to 35.99%. Loan terms vary from 24 to 60 months. Avant’s transparent fee structure is a standout feature with no prepayment penalty.

3. LendingPoint

LendingPoint considers borrowers with fair credit and emphasizes more on your financial potential than past credit history. They provide loans from $2,000 to $36,500 with APRs ranging from 7.99% to 35.99%. Loan terms are either 24 or 48 months. One perk? You could receive funds as soon as the next business day.

4. Peerform

A peer-to-peer lender, Peerform connects borrowers with poor credit to individual investors. They offer loans from $4,000 to $25,000 with APRs between 5.99% to 29.99%. Loan terms are either 36 or 60 months. The downside? You need a minimum credit score of 600, and the funding process can be slower compared to other lenders.

5. Upstart

Upstart considers more than just your credit score, looking at your education, job history, and potential earning power. They offer loans from $1,000 to $50,000, with APRs ranging from 4. 6% to 35.99%. Loan terms are either 36 or 60 months. A notable perk? Upstart’s seamless online application process and fast funding.

Understanding the Evaluation Process

When you apply for a loan, lenders look at several factors to determine the borrower’s riskiness and likelihood of repaying the loan. 

More Than Just Numbers

Lenders first look at your credit score. This three-digit number indicates your creditworthiness or how likely you are to repay the loan. Credit scores range from 300 to 850. Generally, a score below 580 is considered ‘poor,’ while anything above 670 is ‘good.’

In simple terms, it’s a measure of how well you’ve managed your debt in the past. This includes whether you’ve paid your bills on time, how much of your available credit you’ve used, the length of your credit history, the types of credit you’ve had (credit cards, auto loans, mortgages, etc.), and other factors.

A high credit score tells the lender that there’s a strong likelihood that you’ll repay your loan on time based on your past behavior. A lower score, on the other hand, suggests that lending money to you could be riskier because of past late payments, defaults, or other negative marks on your credit history.

Therefore, a credit score serves as lenders’ first-glance risk assessment tool, helping them decide whether to approve the loan and at what interest rate. It’s not the only factor they consider, but it’s often the starting point in the loan approval process.

Underwriting and You

Underwriting is the process where lenders assess your risk as a borrower. It’s during this phase that the factors mentioned above come into play. Some lenders use manual underwriting, where a person reviews your information. Others use automated underwriting systems, which use algorithms to determine your eligibility.

Tips for Improving Your Chances

Here are a few tips to enhance your loan approval odds:

• Know Your Credit Score: Know where you stand before applying for a loan. You can check your credit score for free once a year through each of the major credit bureaus; Equifax, Experian, and TransUnion.
• Improve Your Credit Health: Paying bills on time, reducing debt, and keeping your credit card balances low can help boost your credit score.
• Choose the Right Lender: As discussed earlier, some lenders cater specifically to borrowers with poor credit.
• Offer Collateral: If you’re comfortable with the risk, secured loans can be easier to qualify for as they’re less risky for the lender.
• Add a Co-signer: A co-signer with a solid credit score can improve your chances of approval. But remember, they’ll be on the hook if you can’t make payments.
• Showcase Your Financial Stability: If you have a stable income or a healthy savings account, highlight that in your loan application.
• Lower Your DTI: Paying down debts can lower your DTI, making you a more attractive borrower.

Remember, bad credit doesn’t define you and doesn’t have to limit your financial future either. With patience, diligence, and a little bit of know-how, getting a loan with bad credit can be more than just a pipe dream.